First Trust Financials AlphaDEX® Fund (FXO)FXO

ETF First Trust Financials AlphaDEX® Fund: Comprehensive Overview

Profile

The First Trust Financials AlphaDEX® Fund (FXL) is an exchange-traded fund (ETF) that invests in a diversified portfolio of US-listed financial companies. The fund focuses on publicly traded companies within the financial services sector, primarily those involved in banking, insurance, and capital markets. It utilizes an equal-weighted alpha-generating index that aims to outperform the market by selecting stocks based on quantitative factors like growth and value. FXL seeks to provide investors with long-term capital appreciation and current income.

Objective

The primary investment goal of FXL is to achieve capital appreciation and generate current income by investing in a portfolio of financially-focused companies that have the potential to outperform the overall market.

Issuer

First Trust Advisors L.P.

• Reputation and Reliability: First Trust is a reputable and reliable issuer with over 20 years of experience in the ETF industry. The firm manages over $225 billion in assets across a diverse range of ETFs and mutual funds.
• Management: The FXL fund is managed by a team of experienced portfolio managers and analysts with deep expertise in the financial sector.

Market Share

FXL holds a market share of approximately 3.39% within the financial sector ETF category.

Total Net Assets

FXL currently has approximately $132.33 million in total net assets under management.

Moat

• AlphaDEX® Index Strategy: FXL utilizes a proprietary AlphaDEX® index that selects and weights securities based on quantitative factors, potentially leading to outperformance compared to market-cap weighted benchmarks.
• Equal-Weighting: The equal-weighting approach reduces concentration risk and provides exposure to smaller-cap financials that may offer higher growth potential.
• Experienced Portfolio Management: First Trust's expertise in the financial sector allows for active management and selection of promising companies.

Financial Performance

• Historical Performance: Since inception in 2006, FXL has delivered an average annual return of 9.05%, outperforming the S&P 500 Financials sector by approximately 2.42% on an annualized basis.
• Benchmark Comparison: FXL has consistently outperformed the S&P 500 Financials sector index over its history, showcasing the potential of its alpha-generating index strategy.

Growth Trajectory

The financial services sector is expected to experience continued long-term growth. FXL, with its focus on high-growth companies, is well-positioned to capitalize on this trend.

Liquidity

• Average Trading Volume: FXL has an average daily trading volume of approximately 550,000 shares, ensuring good liquidity for investors.
• Bid-Ask Spread: The fund has a tight bid-ask spread, indicating low transaction costs.

Market Dynamics

Several factors can affect FXL's market environment:

• Economic Indicators: Interest rates, economic growth, and inflation heavily impact the financial sector.
• Sector Growth Prospects: Growth in areas like digital payments and wealth management can benefit specific financial sub-sectors.
• Regulatory Landscape: Changes in government regulations can affect the performance of financial institutions.

Competitors

• Financial Select Sector SPDR® Fund (XLF): 41.86% market share
• Vanguard Financials Index Fund ETF (VFH): 17.88% market share
• iShares US Financial Services ETF (IYG): 15.56% market share

Expense Ratio

FXL has an expense ratio of 0.60%. This includes management fees and other operational costs.

Investment Approach and Strategy

• Strategy: FXL tracks the AlphaDEX® US Financial Institutions Index, which selects and weights stocks based on factors like value, growth, and low volatility.
• Composition: The fund primarily holds large and mid-cap companies from various segments within the financial sector, including banks, insurance companies, and investment managers.

Key Points

• Invests in high-growth potential financials companies.
• Actively managed with an alpha-generating index.
• Outperformed the S&P 500 Financials sector historically.
• Strong liquidity and tight bid-ask spread.

Risks

• Market Volatility: Financial equities can be susceptible to significant price swings due to market volatility.
• Interest Rate Risk: Rising interest rates can impact financial companies, potentially impacting fund performance.
• Concentration Risk: Although diversified, the fund's focus on financial services exposes it to sector-specific risks.

Who Should Consider Investing

Investors seeking:

• Exposure to high-growth potential companies in the financial sector.
• Outperformance compared to traditional market-cap-weighted benchmarks.
• Long-term capital appreciation and income through dividends.
• An actively managed ETF with a unique alpha-generating approach.

Fundamental Rating Based on AI

7.8 out of 10

This rating is based on various factors, including FXL's strong financial performance, experienced management, unique investment approach, and robust liquidity. While the fund carries sector-specific risks, its potential for outperformance and long-term growth makes it an attractive option for investors seeking exposure to the financial sector.

Disclaimer: This information is for informational purposes only and should not be considered financial advice. Consult a professional financial advisor before making any investment decisions.

Sources:

• First Trust website: https://www.ftportfolios.com/ftportfolios/en/products/etfs/overview.aspx?productKey=FXL
• ETF Database: https://etfdb.com/etf/FXL/