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Is First Trust Consumer Staples AlphaDEX ETF (FXG) a Strong ETF Right Now?

Zacks Equity Research
·4-min read

The First Trust Consumer Staples AlphaDEX ETF (FXG) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Consumer Staples ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

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Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by First Trust Advisors, and has been able to amass over $264.86 million, which makes it one of the average sized ETFs in the Consumer Staples ETFs. FXG seeks to match the performance of the StrataQuant Consumer Staples Index before fees and expenses.

The StrataQuant Consumer Staples 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 one of the most expensive products in the space, this ETF has annual operating expenses of 0.63%.

It's 12-month trailing dividend yield comes in at 1.37%.

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.

For FXG, it has heaviest allocation in the Consumer Staples sector --about 88.60% of the portfolio --while Healthcare and Materials round out the top three.

When you look at individual holdings, Archer-Daniels-Midland Company (ADM) accounts for about 4.35% of the fund's total assets, followed by Bunge Limited (BG) and Darling Ingredients Inc. (DAR).

The top 10 holdings account for about 40.29% of total assets under management.

Performance and Risk

The ETF has added about 16.93% so far this year and was up about 19.24% in the last one year (as of 11/12/2021). In the past 52-week period, it has traded between $50.38 and $60.68.

The fund has a beta of 0.71 and standard deviation of 18.54% for the trailing three-year period, which makes FXG a medium risk choice in this particular space. With about 41 holdings, it has more concentrated exposure than peers.

Alternatives

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

Vanguard Consumer Staples ETF (VDC) tracks MSCI US Investable Market Consumer Staples 25/50 Index and the Consumer Staples Select Sector SPDR ETF (XLP) tracks Consumer Staples Select Sector Index. Vanguard Consumer Staples ETF has $6.05 billion in assets, Consumer Staples Select Sector SPDR ETF has $11.73 billion. VDC has an expense ratio of 0.10% and XLP charges 0.12%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Consumer Staples 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 Consumer Staples AlphaDEX ETF (FXG): ETF Research Reports
 
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
 
Bunge Limited (BG) : Free Stock Analysis Report
 
Darling Ingredients Inc. (DAR) : Free Stock Analysis Report
 
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
 
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
 
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Zacks Investment Research