Is First Trust Materials AlphaDEX ETF (FXZ) a Strong ETF Right Now?

Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Materials AlphaDEX ETF (FXZ) provides investors broad exposure to the Materials 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 work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

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 simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

FXZ is managed by First Trust Advisors, and this fund has amassed over $393.72 million, which makes it one of the average sized ETFs in the Materials ETFs. FXZ, before fees and expenses, seeks to match the performance of the StrataQuant Materials Index.

The StrataQuant Materials Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.64% for FXZ, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.30%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Materials sector - about 84.8% of the portfolio. Industrials and Energy round out the top three.

Taking into account individual holdings, Cf Industries Holdings, Inc. (CF) accounts for about 5.29% of the fund's total assets, followed by Newmont Corporation (NEM) and Steel Dynamics, Inc. (STLD).

FXZ's top 10 holdings account for about 43.73% of its total assets under management.

Performance and Risk

The ETF return is roughly 29.86% so far this year and is up about 42.52% in the last one year (as of 08/17/2026). In the past 52-week period, it has traded between $57.87 and $84.83

The fund has a beta of 1.04 and standard deviation of 21.79% for the trailing three-year period, which makes FXZ a medium risk choice in this particular space. With about 40 holdings, it has more concentrated exposure than peers .

Alternatives

First Trust Materials AlphaDEX ETF is not a suitable option for investors seeking to outperform the Materials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) tracks Morningstar Global Upstream Natural Resources Index and the State Street Materials Select Sector SPDR ETF (XLB) tracks Materials Select Sector Index. FlexShares Morningstar Global Upstream Natural Resources ETF has $6.97 billion in assets, State Street Materials Select Sector SPDR ETF has $8.74 billion. GUNR has an expense ratio of 0.46% and XLB changes 0.08%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Materials ETFs

Bottom Line

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This article originally published on Zacks Investment Research (zacks.com).

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