Launched on 05/08/2007, the First Trust Financials AlphaDEX ETF (FXO) is a passively managed exchange traded fund designed to provide a broad exposure to the Financials - Broad segment of the equity market.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 3, placing it in top 19%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $919.45 million, making it one of the average sized ETFs attempting to match the performance of the Financials - Broad segment of the equity market. FXO seeks to match the performance of the StrataQuant Financials Index before fees and expenses.

The StrataQuant Financials 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.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.62%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.59%.

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.

This ETF has heaviest allocation in the Financials sector--about 98.30% of the portfolio.

Looking at individual holdings, The Progressive Corporation (PGR) accounts for about 1.87% of total assets, followed by Mgic Investment Corporation (MTG) and Berkshire Hathaway Inc. (class B) (BRK/B).

The top 10 holdings account for about 17.58% of total assets under management.

Performance and Risk

So far this year, FXO return is roughly 19.90%, and was up about 38.83% in the last one year (as of 09/24/2024). During this past 52-week period, the fund has traded between $35.41 and $51.74.

The ETF has a beta of 1.13 and standard deviation of 22.91% for the trailing three-year period, making it a medium risk choice in the space. With about 104 holdings, it effectively diversifies company-specific risk.