Is First Trust Technology AlphaDEX ETF (FXL) a Strong ETF Right Now?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
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.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Because the fund has amassed over $1.31 billion, this makes it one of the larger ETFs in the Technology ETFs. FXL is managed by First Trust Advisors. This particular fund, before fees and expenses, seeks to match the performance of the StrataQuant Technology Index.
The StrataQuant Technology 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.
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.
It's 12-month trailing dividend yield comes in at 0.03%.
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.
FXL's heaviest allocation is in the Information Technology sector, which is about 79.60% of the portfolio. Its Industrials and Telecom round out the top three.
Taking into account individual holdings, Palantir Technologies Inc. (class A) (PLTR) accounts for about 2.46% of the fund's total assets, followed by Doordash, Inc. (class A) (DASH) and Guidewire Software, Inc. (GWRE).
FXL's top 10 holdings account for about 18.85% of its total assets under management.
So far this year, FXL has added about 1.25%, and was up about 10.42% in the last one year (as of 05/21/2025). During this past 52-week period, the fund has traded between $115.28 and $160.72.
FXL has a beta of 1.18 and standard deviation of 25.55% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 100 holdings, it effectively diversifies company-specific risk.
First Trust Technology AlphaDEX ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Technology Select Sector SPDR ETF (XLK) tracks Technology Select Sector Index and the Vanguard Information Technology ETF (VGT) tracks MSCI US Investable Market Information Technology 25/50 Index. Technology Select Sector SPDR ETF has $72.15 billion in assets, Vanguard Information Technology ETF has $85.98 billion. XLK has an expense ratio of 0.08% and VGT charges 0.09%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
First Trust Technology AlphaDEX ETF (FXL): ETF Research Reports
Guidewire Software, Inc. (GWRE) : Free Stock Analysis Report
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Vanguard Information Technology ETF (VGT): ETF Research Reports
Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report
DoorDash, Inc. (DASH) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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