First Trust Materials AlphaDEX® Fund (FXZ)

ETF First Trust Materials AlphaDEX® Fund: A Summary

Profile:

The First Trust Materials AlphaDEX® Fund (FXN) is an exchange-traded fund (ETF) focused on the materials sector. It tracks the performance of the AlphaDEX® Materials Index, an index composed of publicly listed companies engaged in the mining, production, and processing of raw and finished materials. The ETF employs a quantitative indexing strategy to select and weight its holdings, aiming to achieve superior returns compared to a traditional market-capitalization-weighted index.

Objectives:

The fund's primary goal is to provide long-term capital appreciation by investing in the materials sector. FXN seeks to outperform the broad materials market by leveraging the AlphaDEX® methodology, which selects securities based on a combination of fundamental, technical, and quantitative factors.

Issuer

The ETF is issued and managed by First Trust Advisors L.P, a well-respected and established asset management firm with over $200 billion in AUM. First Trust is known for its innovative ETF products and actively managed investment strategies. The firm boasts a strong reputation for reliability and has consistently received high marks from industry analysts for its performance and transparency.

Market Share & Total Net Assets:

FXN holds a significant market share within the materials ETF space, boasting approximately $6.85 billion in total net assets as of February 2023. This places it among the top five largest materials ETFs, highlighting its popularity and investor confidence.

Moat:

FXN's competitive edge lies in its proprietary AlphaDEX® indexing methodology. This approach goes beyond traditional market-cap weighting, aiming to identify and overweight stocks with stronger potential for growth and outperformance. This active management approach combined with the expertise of First Trust's portfolio management team helps differentiate FXN from other materials ETFs.

Financial Performance:

Historically, FXN has displayed strong performance, consistently exceeding the broader materials market represented by the S&P 500 Materials Index. Over the past 10 years, FXN delivered an annualized return of 12.54%, surpassing the S&P 500 Materials Index's 9.23% return.

However, it's crucial to remember that past performance doesn't always predict future results. Market conditions and sector performance can change significantly, impacting the ETF's returns.

Growth Trajectory: The materials sector is intrinsically linked to global economic growth. As industrial activity and infrastructure development expand, demand for raw materials tends to increase, potentially driving the sector's growth. Additionally, rising urbanization and technological advancements create new demand for specialized materials, fuelling further growth potential.

However, several factors can affect the materials sector, including commodity price fluctuations, supply chain disruptions, and geopolitical tensions. Investors should be aware of these factors and their potential impact on the ETF's performance.

Liquidity:

FXN benefits from high liquidity, with an average daily trading volume exceeding 1.5 million shares. This ensures investors can easily enter and exit positions without significant impact on the ETF price. Additionally, the bid-ask spread, which represents the difference between the buying and selling prices, is relatively narrow, further enhancing FXN's liquidity and cost-efficient trading.

Market Dynamics: Several factors influence FXN's market environment:

• Global economic growth: A strong global economy typically fuels demand for materials, positively impacting the sector and FXN's performance.
• Commodity prices: Fluctuations in commodity prices can affect the profitability of companies within the materials sector, impacting FXN's returns.
• Geopolitical risks: Political instability and trade tensions can disrupt supply chains and impact the materials sector, potentially influencing FXN's performance.

Investors should monitor these factors closely to understand their potential implications for FXN and the broader materials sector.

Competitors: FXN faces stiff competition from other materials ETFs, including:

• Invesco DB Commodity Index Tracking Fund (DBC) - $7.44 billion in assets
• iShares S&P GSCI Commodity-Indexed Trust (GSG) - $6.64 billion in assets
• VanEck Merk Gold Trust (OUNZ) - $3.45 billion in assets.

These competitors offer similar exposure to the materials sector, each with its own investment strategies and fee structures.

Expense Ratio:

FXN carries an expense ratio of 0.58%, which represents the annual fees charged to investors for managing the fund. This expense ratio is slightly higher than some competitors but remains within the range for actively managed materials ETFs.

Investment Strategy:

FXN utilizes an active management approach through its AlphaDEX® indexing methodology. It invests in a diversified portfolio of companies within the materials sector, focusing on those with higher growth potential. The fund's holdings include a mix of large-cap, mid-cap, and small-cap companies, providing diversification across the sector's market capitalization spectrum.

Key Points & Benefits:

• Access to the materials sector with an actively managed approach.
• Potential for outperforming the broader materials market through the AlphaDEX® methodology.
• High liquidity and tight bid-ask spread.
• Established and reputable issuer with a proven track record.

Risks:

• Volatility: The materials sector experiences higher volatility compared to other sectors, leading to potential for larger price swings in the ETF.
• Market risk: FXN's performance is tied closely to the performance of the underlying materials companies, which are impacted by various economic and industry-specific factors.