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

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.

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.

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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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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

Managed by First Trust Advisors, FXG has amassed assets over $684.20 million, making it one of the average sized ETFs in the Consumer Staples ETFs. FXG, before fees and expenses, 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 on par with most peer products in the space.

FXG's 12-month trailing dividend yield is 1.85%.

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.

Representing 87.50% of the portfolio, the fund has heaviest allocation to the Consumer Staples sector; Healthcare and Materials round out the top three.

Taking into account individual holdings, Post Holdings, Inc. (POST) accounts for about 4.27% of the fund's total assets, followed by Performance Food Group Company (PFGC) and Amerisourcebergen Corporation (ABC).

The top 10 holdings account for about 40.14% of total assets under management.

Performance and Risk

The ETF has lost about -1.50% and is down about -3.71% so far this year and in the past one year (as of 05/30/2023), respectively. FXG has traded between $56.87 and $66.13 during this last 52-week period.

The fund has a beta of 0.66 and standard deviation of 14.82% 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 $6.72 billion in assets, Consumer Staples Select Sector SPDR ETF has $18.23 billion. VDC has an expense ratio of 0.10% and XLP charges 0.10%.

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

AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report

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

Post Holdings, Inc. (POST) : Free Stock Analysis Report

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

Vanguard Consumer Staples ETF (VDC): ETF Research Reports

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Zacks Investment Research