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

Zacks Equity Research
·4 min read

Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Consumer Staples AlphaDEX ETF (FXG) provides investors broad exposure to the Consumer Staples 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.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

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.

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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.

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

FXG is managed by First Trust Advisors, and this fund has amassed over $423.31 million, which makes it one of the average sized ETFs in the Consumer Staples ETFs. Before fees and expenses, FXG seeks to match the performance of the StrataQuant Consumer Staples Index.

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.

Operating expenses on an annual basis are 0.63% for FXG, making it the most expensive product in the space.

It's 12-month trailing dividend yield comes in at 1.21%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Consumer Staples sector - about 86.40% of the portfolio. Healthcare and Materials round out the top three.

Looking at individual holdings, Freshpet, Inc. (FRPT) accounts for about 4.97% of total assets, followed by Performance Food Group Company (PFGC) and Ingredion Incorporated (INGR).

Its top 10 holdings account for approximately 39.76% of FXG's total assets under management.

Performance and Risk

The ETF has gained about 4.01% so far this year and is up about 7.40% in the last one year (as of 06/26/2024). In the past 52-week period, it has traded between $57.04 and $68.49.

FXG has a beta of 0.65 and standard deviation of 13.62% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 41 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust Consumer Staples AlphaDEX ETF is not a suitable option for investors seeking to outperform the Consumer Staples ETFs segment of the market. Instead, there are other ETFs in the space which investors should 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 $6.68 billion in assets, Consumer Staples Select Sector SPDR ETF has $15.70 billion. VDC has an expense ratio of 0.10% and XLP 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 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

First Trust Consumer Staples AlphaDEX ETF (FXG): ETF Research Reports

Freshpet, Inc. (FRPT) : Free Stock Analysis Report

Ingredion Incorporated (INGR) : Free Stock Analysis Report

Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports

Performance Food Group Company (PFGC) : Free Stock Analysis Report

Vanguard Consumer Staples ETF (VDC): ETF Research Reports

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Zacks Investment Research