The First Trust Consumer Discretionary AlphaDEX ETF (FXD – Free Report) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Consumer Discretionary 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.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination 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
The fund is managed by First Trust Advisors. FXD has been able to amass assets over $1.57 billion, making it one of the larger ETFs in the Consumer Discretionary ETFs. FXD, before fees and expenses, seeks to match the performance of the StrataQuant Consumer Discretionary Index.
The StrataQuant Consumer Discretionary Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.
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.
Annual operating expenses for FXD are 0.61%, which makes it on par with most peer products in the space.
It’s 12-month trailing dividend yield comes in at 0.89%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund’s holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FXD, it has heaviest allocation in the Consumer Discretionary sector –about 75.30% of the portfolio –while Telecom and Industrials round out the top three.
Looking at individual holdings, United Airlines Holdings, Inc. (UAL – Free Report) accounts for about 2.23% of total assets, followed by Carvana Co. (class A) (CVNA – Free Report) and Royal Caribbean Cruises Ltd. (RCL – Free Report) .
The top 10 holdings account for about 16.9% of total assets under management.
Performance and Risk
The ETF has added about 0.09% and is up roughly 15.25% so far this year and in the past one year (as of 01/06/2025), respectively. FXD has traded between $56.49 and $68.52 during this last 52-week period.
FXD has a beta of 1.38 and standard deviation of 23.14% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 122 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Consumer Discretionary AlphaDEX ETF is a reasonable option for investors seeking to outperform the Consumer Discretionary ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Consumer Discretionary ETF (VCR – Free Report) tracks MSCI US Investable Market Consumer Discretionary 25/50 Index and the Consumer Discretionary Select Sector SPDR ETF (XLY – Free Report) tracks Consumer Discretionary Select Sector Index. Vanguard Consumer Discretionary ETF has $6.59 billion in assets, Consumer Discretionary Select Sector SPDR ETF has $23.16 billion. VCR has an expense ratio of 0.10% and XLY charges 0.09%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Consumer Discretionary 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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