First Trust Consumer Discretionary AlphaDEX® Fund (FXD)

ETF First Trust Consumer Discretionary AlphaDEX® Fund (FXD)

Profile:

FXD is an ETF that invests in US-listed consumer discretionary stocks with the aim of beating the broader market. It achieves this by utilizing an active management approach that selects stocks based on a proprietary, multi-factor quantitative model. The ETF primarily invests in large-cap stocks with some exposure to mid-cap companies.

Objective:

The primary investment goal of FXD is to provide investors with long-term capital appreciation through its holdings in a diversified portfolio of consumer discretionary stocks. It seeks to outperform the Consumer Discretionary Select Sector Index (a standard benchmark for the sector) through active management.

Issuer:

First Trust Advisors, a leading asset management firm with over $40 billion in assets under management. It has been operating since 1991, has a long history of successful ETF launches and management, and boasts a solid reputation within the financial industry.

Market Share:

In terms of market share within the consumer discretionary sector, FXD holds roughly 0.5%, placing it among the smaller players in this category. However, its active management approach and solid performance set it apart from its passively managed counterparts.

Total Net Assets:

FXD's total net assets currently stand at approximately $380 million, indicating investor trust in the fund's management and strategy.

Moat:

Several factors contribute to FXD's competitive moat:

• Active Management: Unlike many ETFs that simply track an index, FXD utilizes a unique quantitative model to identify undervalued stocks with growth potential. This active approach allows the fund to deviate from the benchmark and potentially achieve superior returns.
• Experienced Management Team: The firm behind FXD, First Trust, has a proven track record and expertise in managing successful ETFs across diverse industries. This experience provides confidence in the fund's leadership and decision-making capabilities.
• Niche Market Focus: By focusing on the consumer discretionary sector, FXD provides targeted exposure to a dynamic segment of the market with long-term growth potential.

Financial Performance:

Historically, FXD has demonstrated strong performance compared to its benchmark and other ETFs within the consumer discretionary sector. The fund has delivered a 5-year annualized return of 14.33%, outperforming the Consumer Discretionary Select Sector Index's 12.06% by 2.27% over the same period.

Growth Trajectory:

The consumer discretionary sector is expected to experience long-term growth driven by increasing consumer spending and a growing middle class, particularly in developing economies. This positive outlook bodes well for FXD's future growth trajectory.

Liquidity:

FXD's average daily trading volume is approximately 50,000 shares, demonstrating good liquidity and facilitating easy buying and selling for investors. The bid-ask spread (the difference between the buying and selling price) is also relatively tight, minimizing transaction costs.

Market Dynamics:

Various factors influence FXD's market environment:

• Economic Indicators: Economic growth, consumer confidence, and disposable income significantly impact consumer spending and thus the performance of consumer discretionary companies.
• Sector Growth Prospects: The growth prospects of specific industries within the consumer discretionary sector, such as e-commerce, entertainment, and travel, influence the overall performance of the fund.
• Interest Rate Environment: Rising interest rates can affect consumer spending and potentially impact the performance of the underlying companies.

Competitors:

• Consumer Discretionary Select Sector SPDR Fund (XLY): With approximately 80.9% market share, XLY is the leading player in the space and passively tracks the Consumer Discretionary Select Sector Index.
• Vanguard Consumer Discretionary ETF (VCR): VCR holds a market share of around 5.4% and also passively tracks the Consumer Discretionary Select Sector Index.

Expense Ratio:

FXD's expense ratio is 0.6%, which includes management fees and other operational costs. This expense ratio is slightly higher than passively managed ETFs but lower than many other actively managed funds within the sector.

Investment Approach and Strategy:

FXD utilizes an active management approach based on a proprietary quantitative model to identify undervalued stocks within the consumer discretionary sector showing strong growth potential. The fund invests in a diversified portfolio of large-cap and mid-cap stocks with the goal of exceeding the performance of the broader consumer discretionary market.

Key Points:

• Actively managed consumer discretionary ETF.
• Strong historical performance exceeding its benchmark.
• Solid reputation of issuing company, First Trust.
• Competitive advantages due to active management, unique strategy, and experienced team.
• Relatively low expense ratio for an actively managed fund.
• Good liquidity for easy trading.

Risks:

• Potential for higher volatility compared to passively managed ETFs.
• Underlying market risks associated with the consumer discretionary sector.
• Tracking error risk, meaning the fund's performance could deviate from the benchmark index.

Who Should Consider Investing:

This ETF is suitable for investors:

• Seeking active management and the potential for outperformance within the consumer discretionary sector.
• Comfort