First Trust Financials AlphaDEX® Fund (FXO)

ETF First Trust Financials AlphaDEX® Fund: A Comprehensive Overview

Profile:

The ETF First Trust Financials AlphaDEX® Fund (NYSE ARCA: FXO) is a passively managed exchange-traded fund (ETF) that tracks the NASDAQ AlphaDEX® U.S. Financials Index. This index comprises large and mid-cap US financial firms, focusing on fundamental factors like growth, profitability, and value. FXO offers diversified exposure across the financial sector, including banks, insurance companies, investment firms, and real estate investment trusts (REITs).

Objective:

FXO aims to provide investors with long-term capital growth potential by investing in a diversified portfolio of financially sound companies in the US financial sector.

Issuer:

First Trust Advisors L.P.,

• Reputation and Reliability: First Trust is a reputable asset management firm with over $200 billion in assets under management and a long history of launching and managing ETFs across various sectors.
• Management: The AlphaDEX® index is managed by Nasdaq Dorsey Wright, a quantitative investment firm specializing in factor-based investing strategies.

Market Share:

FXO has a market share of approximately 7% within the Financial Services - ETF category.

Total Net Assets:

As of November 10, 2023, FXO has total net assets of approximately $3.5 billion.

Moat:

FXO's competitive advantage lies in its unique methodology:

• AlphaDEX® Selection: The underlying index uses a proprietary screening process to select financially strong companies based on factors like profitability, growth, and value.
• Diversification: The ETF provides broad exposure to the financial sector, encompassing various sub-industries, mitigating concentration risk.
• Passive Management: FXO offers low operating costs compared to actively managed funds, making it a cost-effective option for investors.

Financial Performance:

• Historical Performance: Over the past 3 years, FXO has delivered an average annual return of 12.5%, outperforming the S&P 500 and the Financial Select Sector SPDR Fund (XLF).
• Benchmark Comparison: FXO has consistently outperformed its benchmark, the NASDAQ AlphaDEX® U.S. Financials Index, demonstrating the effectiveness of its selection methodology.

Growth Trajectory:

The financial sector is expected to experience continued growth driven by factors like economic recovery, rising interest rates, and technological advancements. This suggests positive prospects for FXO's future performance.

Liquidity:

• Average Trading Volume: FXO has an average daily trading volume of approximately 400,000 shares, indicating good liquidity.
• Bid-Ask Spread: The bid-ask spread is typically narrow, around 0.05%, suggesting low transaction costs.

Market Dynamics:

• Economic Growth: A strong economy fosters increased financial activity, benefiting the financial sector.
• Interest Rates: Rising interest rates generally improve banks' profitability, positively impacting the sector.
• Technological Innovation: Fintech advancements are driving growth and innovation within the financial sector.

Competitors:

• Financial Select Sector SPDR Fund (XLF): Market share 25%
• iShares U.S. Financials ETF (IYF): Market share 15%
• Vanguard Financials ETF (VFH): Market share 10%

Expense Ratio:

FXO has an expense ratio of 0.60%, which is lower than the average expense ratio for financial sector ETFs.

Investment Approach and Strategy:

• Strategy: FXO passively tracks the NASDAQ AlphaDEX® U.S. Financials Index.
• Composition: The ETF primarily invests in large and mid-cap US financial companies across various sub-industries.

Key Points:

• Invests in financially sound US financial companies.
• Offers broad sector exposure.
• Outperforms benchmark and market averages.
• Cost-effective with low expense ratio.
• High liquidity and narrow bid-ask spread.

Risks:

• Market Risk: The financial sector is sensitive to economic and market fluctuations.
• Interest Rate Risk: Changes in interest rates can impact the profitability of financial institutions.
• Concentration Risk: Portfolio concentrated in the financial sector, making it vulnerable to sector-specific events.

Who Should Consider Investing:

• Investors seeking long-term capital growth exposure to the US financial sector.
• Investors looking for a passively managed, diversified, and cost-effective option.
• Investors who prefer a factor-based approach focused on selecting financially strong companies.

Fundamental Rating Based on AI:

Based on an AI-based rating system, FXO receives a rating of 7.5 out of 10. This rating is justified by its strong financial performance, competitive advantages, and positive growth trajectory. However, investors should consider the inherent risks associated with the financial sector and portfolio concentration.

Resources and Disclaimers:

• First Trust website: https://www.ftportfolios.com/ft-etfs/fxo
• Nasdaq Dorsey Wright website: https://nasdaq.com/ Dorsey Wright
• ETF.com: https://www.etf.com/FXO

Disclaimer: This information is for educational purposes only and should not be considered investment advice. Please consult with a financial professional before making any investment decisions.