The First Trust Large Cap Core AlphaDEX ETF (FEX) launched on August 5, 2007, giving investors a way to gain exposure to the large-cap blend segment of the market. This ETF stands out as a smart beta fund, meaning it doesn’t simply track a market-cap weighted index like many traditional ETFs. Instead, FEX employs a unique approach called the AlphaDEX methodology.
What are Smart Beta ETFs?
Traditional ETFs typically track market-cap weighted indexes, reflecting a specific market segment or the broader market. These ETFs offer cost-effective, convenient, and transparent ways to mimic market returns, appealing to investors who believe in market efficiency. However, smart beta ETFs like FEX diverge from this traditional approach by tracking non-cap weighted strategies. This means they prioritize factors beyond market capitalization, such as fundamental characteristics of companies, in an attempt to outperform the market.
FEX: A Deeper Look
FEX is managed by First Trust Advisors and, with over $1.22 billion in assets, it’s one of the larger ETFs in the large-cap blend category. Its goal is to track the performance of the Nasdaq AlphaDEX Large Cap Core Index, which uses the AlphaDEX methodology to select stocks from the NASDAQ US 500 Large Cap Index. This approach aims to identify stocks with strong potential for risk-adjusted returns.
Cost Considerations
Expense ratios play a crucial role in ETF returns. Over the long term, cheaper funds tend to outperform more expensive ones. FEX has an annual operating expense ratio of 0.60%, which is on par with other similar ETFs. The fund also offers a 12-month trailing dividend yield of 1.19%.
Sector Exposure and Top Holdings
FEX holds a diversified portfolio, minimizing single-stock risk. Its largest allocation is in the Industrials sector, accounting for roughly 16.70% of its portfolio. Financials and Information Technology round out the top three sectors.
Among its individual holdings, Nvidia Corporation represents about 0.62% of the fund’s total assets, followed by Vistra Corp. and Crowdstrike Holdings, Inc. The top 10 holdings account for approximately 5.26% of FEX’s total assets under management.
Performance and Risk
So far this year (as of August 15, 2024), FEX has gained around 9.35%. Over the past year, it’s increased by about 16.57%. During the last 52 weeks, the fund traded between $76.85 and $100.86.
FEX has a beta of 1.05 and a standard deviation of 16.93% for the trailing three-year period, placing it in the medium risk category for this type of fund. Its diversified portfolio with around 376 holdings effectively mitigates company-specific risks.
Alternatives
While FEX offers a compelling option for investors seeking to outperform the large-cap blend market segment, other ETFs exist for consideration.
The IShares Core S&P 500 ETF (IVV) and the SPDR S&P 500 ETF (SPY) both track the S&P 500 Index, providing broad market exposure. IVV has amassed $499.77 billion in assets, while SPY boasts $550.61 billion. IVV carries an expense ratio of 0.03%, whereas SPY charges 0.09%.
If lower costs and reduced risk are priorities, investors might consider traditional market-cap weighted ETFs like IVV and SPY, which aim to mirror the returns of the large-cap blend category.
