Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Mid Cap Core AlphaDEX ETF (FNX) provides investors broad exposure to the Style Box – Mid Cap Blend category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
A good option for investors who believe in market efficiency, market cap weighted indexes offer 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.
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.
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
Because the fund has amassed over $1.29 billion, this makes it one of the average sized ETFs in the Style Box – Mid Cap Blend. FNX is managed by First Trust Advisors. This particular fund seeks to match the performance of the Nasdaq AlphaDEX Mid Cap Core Index before fees and expenses.
The NASDAQ AlphaDEX Mid Cap Core Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 600 Mid Cap Index.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF’s expense ratio.
Annual operating expenses for this ETF are 0.62%, making it one of the most expensive products in the space.
FNX’s 12-month trailing dividend yield is 0.86%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FNX, it has heaviest allocation in the Industrials sector –about 21.4% of the portfolio –while Financials and Consumer Discretionary round out the top three.
Taking into account individual holdings, Lumentum Holdings Inc. (LITE) accounts for about 0.76% of the fund’s total assets, followed by Ciena Corporation (CIEN) and Apa Corporation (APA).