The First Trust Health Care AlphaDEX ETF (FXH) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Health Care ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
However, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
This area offers many different investment choices, such as the simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsors & Index
Managed by First Trust Advisors, FXH has amassed assets of over $1.52 billion, making it one of the larger ETFs in the Health Care ETFs. FXH, before fees and expenses, seeks to match the performance of the StrataQuant Health Care Index.
The StrataQuant Health Care Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.
Cost & Other Expenses
Investors should also pay attention to an ETF’s expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for this ETF are 0.61%, making it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 0.21%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, although it’s still important for investors to research a fund’s holdings.
For FXH, it has the heaviest allocation in the Healthcare sector –about 100% of the portfolio.
Looking at individual holdings, Hca Healthcare, Inc. (HCA) accounts for about 2.19% of total assets, followed by Laboratory Corporation Of America Holdings (LH) and Moderna, Inc. (MRNAs).
The top 10 holdings account for about 21.1% of total assets under management.
Performance and Risk
So far this year, FXH has lost about -4.35%, and is down about -4.99% in the last one year (as of 03/16/2023). During this past 52-week period, the fund has traded between $96.46 and $118.61.
The fund has a beta of 0.80 and a standard deviation of 22.17% for the trailing three-year period, which makes FXH a medium risk choice in this particular space. With about 84 holdings, it effectively diversifies company-specific risks.
First Trust Health Care AlphaDEX ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
The Vanguard Health Care ETF (VHT) tracks the MSCI US Investable Market Health Care 25/50 Index and the Health Care Select Sector SPDR ETF (XLV) tracks Health Care Select Sector Index. Vanguard Health Care ETF has $16.28 billion in assets, Health Care Select Sector SPDR ETF has $38.04 billion. VHT has an expense ratio of 0.10% and XLV charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on the latest developments in the ETF investing universe, please visit the Zacks ETF Center.
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First Trust Health Care AlphaDEX ETF (FXH): ETF Research Reports
Laboratory Corporation of America Holdings (LH): Free Stock Analysis Report
Moderna, Inc. (MRNA) : Free Stock Analysis Report
HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report
Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
Vanguard Health Care ETF (VHT): ETF Research Reports
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