Exploring the First Trust Technology AlphaDEX ETF: A Smart Bet on Tech

The First Trust Technology AlphaDEX ETF (FXL), launched on 05/08/2007, provides a unique opportunity for investors seeking broad exposure to the technology sector.

Understanding Smart Beta ETFs

The ETF market has traditionally relied on market capitalization-weighted indexes, which reflect the overall market or specific segments of it.

For investors who trust in market efficiency, these traditional indexes offer a cost-effective and transparent way to mirror market returns. However, some prefer smart beta funds, which focus on non-cap weighted strategies aiming to select stocks that can outperform the market.

These funds utilize specific fundamental characteristics, or a combination, to identify stocks with better potential for risk-return performance. While various methodologies exist in this space—including equal weighting, fundamental weighting, and volatility/momentum—we note that not all strategies consistently yield superior results.

Fund Management and Index Tracking

FXL is managed by First Trust Advisors, boasting assets over $1.44 billion, making it one of the larger entities in the technology ETF market. Its goal is to replicate the performance of the StrataQuant Technology Index before fees and expenses.

The StrataQuant Technology Index is a modified equal-dollar weighted index created by AMEX, designed to identify stocks in the Russell 1000 Index that may generate positive alpha using the AlphaDEX screening process.

Analyzing Costs and Expenses

When investing in an ETF, understanding expense ratios is crucial, as lower costs can lead to significantly better long-term performance. FXL’s annual operating expenses are 0.62%, which is competitive within its peer group.

As for income, FXL offers a 12-month trailing dividend yield of 0.34%.

Sector Allocation and Leading Holdings

Diversification mitigates single stock risks in ETFs, yet examining a fund’s holdings is essential before investing. FXL clearly outlines its holdings daily to provide full transparency.

The fund’s largest allocation, approximately 81.50%, is in the Information Technology sector. Other top sectors include Industrials and Telecom.

In terms of individual stocks, Applovin Corp. (class A) (APP) makes up about 2.62% of the total assets, followed by Palantir Technologies Inc. (class A) (PLTR) and Meta Platforms Inc. (class A) (META). In total, the ten primary holdings represent around 19.65% of FXL’s total assets.

Performance Overview and Risk Assessment

As of November 11, 2024, FXL has gained approximately 18.46% in 2024, resulting in a one-year increase of about 36.54%. Over the past 52 weeks, the fund’s price ranged from $112.85 to $151.57.

With a beta of 1.13 and a standard deviation of 25.41% over the trailing three years, FXL presents a medium-risk option, effectively diversifying risks across its 103 holdings.

Exploring Other Investment Options

Investors interested in alternatives to FXL can consider other ETFs in the technology sector. The Technology Select Sector SPDR ETF (XLK) tracks the Technology Select Sector Index, while the Vanguard Information Technology ETF (VGT) follows the MSCI US Investable Market Information Technology 25/50 Index. XLK has assets of $73.62 billion and VGT has $82.62 billion, with expense ratios of 0.09% and 0.10%, respectively.

For those considering lower-cost, lower-risk options, traditional market-cap-weighted ETFs are available, designed to match returns from the technology sector.

Conclusion

If you’re interested in learning more about this ETF or exploring other options, visit Zacks ETF Center for resources tailored to your investment goals.

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First Trust Technology AlphaDEX ETF (FXL): ETF Research Reports

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

AppLovin Corporation (APP): Free Stock Analysis Report

Vanguard Information Technology ETF (VGT): ETF Research Reports

Palantir Technologies Inc. (PLTR): Free Stock Analysis Report

Meta Platforms, Inc. (META): Free Stock Analysis Report

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Zacks Investment Research

The opinions expressed here are solely those of the author and may not reflect the views of Nasdaq, Inc.