Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?

A smart beta exchange traded fund, the First Trust Materials AlphaDEX ETF (FXZ) debuted on 05/08/2007, and offers broad exposure to the Materials ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

Managed by First Trust Advisors, FXZ has amassed assets over $209.25 million, making it one of the average sized ETFs in the Materials ETFs. FXZ seeks to match the performance of the StrataQuant Materials Index before fees and expenses.

The StrataQuant Materials 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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Operating expenses on an annual basis are 0.61% for this ETF, which makes it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 1.92%.

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.

This ETF has heaviest allocation in the Materials sector - about 91.20% of the portfolio.

Taking into account individual holdings, Newmarket Corporation (NEU) accounts for about 5.41% of the fund's total assets, followed by Steel Dynamics, Inc. (STLD) and Newmont Corporation (NEM).

FXZ's top 10 holdings account for about 47.14% of its total assets under management.

Performance and Risk

So far this year, FXZ has lost about -3.80%, and is down about -18.49% in the last one year (as of 05/30/2025). During this past 52-week period, the fund has traded between $46.76 and $69.51.

FXZ has a beta of 1.15 and standard deviation of 24.42% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust Materials AlphaDEX ETF is a reasonable option for investors seeking to outperform the Materials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index and the Materials Select Sector SPDR ETF (XLB) tracks Materials Select Sector Index. FlexShares Morningstar Global Upstream Natural Resources ETF has $4.69 billion in assets, Materials Select Sector SPDR ETF has $4.74 billion. GUNR has an expense ratio of 0.46% and XLB charges 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 Materials 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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This article originally published on Zacks Investment Research (zacks.com).

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