Designed to provide broad exposure to the Consumer Staples ETFs category of the market, the First Trust Consumer Staples AlphaDEX ETF (FXG) is a smart beta exchange traded fund launched on 05/08/2007.
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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other 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
FXG is managed by First Trust Advisors, and this fund has amassed over $314.72 million, which makes it one of the average sized ETFs in the Consumer Staples ETFs. This particular fund, 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
Investors should also pay attention to an ETF’s expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for this ETF are 0.64%, making it one of the most expensive products in the space.
The fund has a 12-month trailing dividend yield of 1.34%.
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.
FXG’s heaviest allocation is in the Consumer Staples sector, which is about 88.20% of the portfolio. Its Healthcare and Materials round out the top three.
When you look at individual holdings, Archer-Daniels-Midland Company (ADM) accounts for about 4.35% of the fund’s total assets, followed by Bunge Limited (BG) and Darling Ingredients Inc. (DAR).
The top 10 holdings account for about 40.29% of total assets under management.
Performance and Risk
So far this year, FXG has added about 2.33%, and it’s up approximately 24.12% in the last one year (as of 01/14/2022). During this past 52-week period, the fund has traded between $52.31 and $63.58.
FXG has a beta of 0.73 and standard deviation of 18.31% 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.
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 $6.54 billion in assets, Consumer Staples Select Sector SPDR ETF has $14.19 billion. VDC has an expense ratio of 0.10% and XLP charges 0.12%.
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.
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.
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First Trust Consumer Staples AlphaDEX ETF (FXG): ETF Research Reports
Archer Daniels Midland Company (ADM): Free Stock Analysis Report
Bunge Limited (BG): Free Stock Analysis Report
Darling Ingredients Inc. (DAR): Free Stock Analysis Report
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
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