A smart beta exchange traded fund, the First Trust Financials AlphaDEX ETF (FXO) debuted on 05/08/2007, and offers broad exposure to the Financials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
Because the fund has amassed over $1.99 billion, this makes it one of the larger ETFs in the Financials ETFs. FXO is managed by First Trust Advisors. Before fees and expenses, this particular fund seeks to match the performance of the StrataQuant Financials Index.
The StrataQuant Financials Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.60% for this ETF, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 1.82%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
FXO's heaviest allocation is in the Financials sector, which is about 100% of the portfolio.
When you look at individual holdings, First American Financial Corporation (FAF) accounts for about 1.8% of the fund's total assets, followed by Bank Ozk (OZK) and Renaissancere Holdings Ltd. (RNR).
Its top 10 holdings account for approximately 17.16% of FXO's total assets under management.
Performance and Risk
The ETF has lost about -2.34% and is up roughly 9% so far this year and in the past one year (as of 03/04/2026), respectively. FXO has traded between $45.90 and $62.21 during this last 52-week period.
The ETF has a beta of 1.01 and standard deviation of 21.13% for the trailing three-year period, making it a medium risk choice in the space. With about 105 holdings, it effectively diversifies company-specific risk .
Alternatives
First Trust Financials AlphaDEX ETF is an excellent option for investors seeking to outperform the Financials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Vanguard Financials Index Fund ETF Shares (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the State Street Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials Index Fund ETF Shares has $12.83 billion in assets, State Street Financial Select Sector SPDR ETF has $49.48 billion. VFH has an expense ratio of 0.09% and XLF changes 0.08%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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First Trust Financials AlphaDEX ETF (FXO): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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