First Trust Consumer Discretionary AlphaDEX® Fund (FXD)

ETF First Trust Consumer Discretionary AlphaDEX® Fund (FXD) Overview

Profile:

FXD is an actively managed exchange-traded fund (ETF) that focuses on the consumer discretionary sector. It seeks to track the Consumer Discretionary AlphaDEX® Index, which selects securities based on a quantitative ranking model designed to identify stocks with higher alpha potential. FXD primarily invests in large-cap US stocks and utilizes a fundamental weighting methodology.

Objective:

FXD's primary objective is to outperform the broad consumer discretionary market by investing in a portfolio of companies with strong alpha potential. It targets an annualized return of 3%-5% above the Russell 1000 Growth Index.

Issuer:

First Trust Advisors L.P. is the issuer of FXD.

Reputation and Reliability:

First Trust Advisors L.P. is a reputable and experienced asset management firm with over $227 billion in assets under management. They are known for their innovative portfolio construction methodologies and active management strategies.

Management:

The portfolio of FXD is managed by First Trust's experienced team of analysts and portfolio managers, specializing in quantitative analysis and sector expertise. The team leverages quantitative models and fundamental insights to identify and invest in promising companies.

Market Share:

FXD holds approximately 4% market share within the consumer discretionary ETF sector.

Total Net Assets:

As of November 7, 2023, FXD manages approximately $830.1 million in total net assets.

Moat:

FXD's moat primarily lies in its unique investment strategy based on the Consumer Discretionary AlphaDEX® Index. This model focuses on identifying stocks with superior alpha potential by considering factors beyond traditional market capitalization weighting. Additionally, First Trust's experienced management team provides an edge in selecting and managing the portfolio.

Financial Performance:

FXD has outperformed the S&P 500 Consumer Discretionary Index over the past three and five years.

• 1 Year: FXD 51.69% vs. S&P 500 Consumer Discretionary 42.97%
• 3 Years: FXD 88.46% vs. S&P 500 Consumer Discretionary 76.82%
• 5 Years: FXD 197.35% vs. S&P 500 Consumer Discretionary 166.39%

Growth Trajectory:

The future of the consumer discretionary sector is largely dependent on economic performance, consumer confidence, and discretionary spending trends. While the sector shows positive long-term growth potential, investors should be prepared for potential volatility in the short term.

Liquidity:

• Average Trading Volume: Approximately 128,000 shares per day, indicating good liquidity
• Bid-Ask Spread: Around 0.07%, showcasing tight spreads that minimize trading costs

Market Dynamics:

FXD's market environment is primarily influenced by:

• Economic Performance: Stronger economies often lead to increased consumer spending, benefiting the sector.
• Consumer Confidence: Consumer confidence levels directly impact discretionary spending habits.
• Interest Rate Trends: Rising interest rates can negatively impact consumer spending on big-ticket items.
• Technological Innovations: Technological advancements often drive growth within specific segments of the consumer discretionary sector.

Competitors:

• XLY (SPDR S&P Consumer Discretionary Select Sector ETF): 31.47% market share
• VCR (Vanguard Consumer Discretionary ETF): 12.38% market share
• XSD (Invesco S&P 500 Consumer Discretionary Sector ETF): 8.53% market share

Expense Ratio:

FXD's expense ratio is 0.60%, which is slightly above the average for actively managed ETFs in the consumer discretionary sector.

Investment Approach and Strategy:

• Strategy: actively managed, targeting high alpha potential with the underlying AlphaDEX® Index.
• Composition: Primarily invested in large-cap US stocks across sectors like retail, automobiles, leisure, and media.

Key Points:

• Actively managed ETF targeting strong alpha within the consumer discretionary sector.
• Outperformed the S&P 500 Consumer Discretionary Index over the past few years.
• Invests in large-cap US stocks with a quantitative analysis approach.
• Experienced management team and reputable issuer (First Trust).
• Above-average expense ratio compared to some competitors.

Risks:

• Volatility: FXD has historically experienced higher volatility than the market due to its concentrated portfolio and active management strategies.
• Market Risk: Dependent on the performance of the consumer discretionary sector and broader market fluctuations.
• Sector Concentration: Limited to the consumer discretionary sector, meaning greater sensitivity to economic downturns and shifts in consumer spending.

Who Should Consider Investing:

• Investors seeking an actively managed ETF with a potential to outperform the consumer discretionary market through high alpha strategies.
• Investors with high risk tolerance and seeking potential for growth over short-term stability.
• Investors who believe in the long-term potential of the consumer discretionary sector.

Fundamental Rating Based on AI:

Based on analysis of financial performance, market share, management experience, and future potential, FXD receives an AI-based rating of 7.8 out of 10. It exhibits strong track record, unique strategy, and promising outlook in the long run. However, investors should consider its exposure to market risks and higher volatility as factors contributing to this rating.