Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Financials AlphaDEX ETF (FXO) provides investors broad exposure to the Financials 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.
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.
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
The fund is managed by First Trust Advisors, and has been able to amass over $2.12 billion, which makes it one of the larger ETFs in the Financials ETFs. Before fees and expenses, FXO 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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.61%.
FXO's 12-month trailing dividend yield is 2.10%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 99.1% of the portfolio, the fund has heaviest allocation to the Financials sector.
When you look at individual holdings, The Goldman Sachs Group, Inc. (GS) accounts for about 1.87% of the fund's total assets, followed by Morgan Stanley (MS) and Lpl Financial Holdings Inc. (LPLA).
The top 10 holdings account for about 17.46% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Financials AlphaDEX ETF return is roughly 2.24% so far, and was up about 20.55% over the last 12 months (as of 06/25/2025). FXO has traded between $45.78 and $59.00 in this past 52-week period.
The fund has a beta of 1.01 and standard deviation of 22.81% for the trailing three-year period, which makes FXO a medium risk choice in this particular space. With about 103 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 ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $12.29 billion in assets, Financial Select Sector SPDR ETF has $49.4 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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