Is First Trust Health Care AlphaDEX ETF (FXH) a Strong ETF Right Now?

The First Trust Health Care AlphaDEX ETF (FXH) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Health Care ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

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.

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.

Even though this space provides many choices to investors–think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting–not all have been able to deliver first-rate results.

Fund Sponsors & Index

The fund is sponsored by First Trust Advisors. It has secured assets of over $1.55 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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF’s expense ratio.

Operating expenses on an annual basis are 0.61% for FXH, making it on par with most peer products in the space.

FXH’s 12-month trailing dividend yield is 0.25%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund’s holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has the heaviest allocation in the Healthcare sector – about 100% of the portfolio.

Taking into account individual holdings, Catalent, Inc. (CTLT) accounts for about 2.33% of the fund’s total assets, followed by Hca Healthcare, Inc. (HCA) and Insulet Corporation (PODD).

The top 10 holdings account for about 21.6% of total assets under management.

Performance and Risk

The ETF has lost about -1.46% so far this year and is up roughly 2.11% in the last one year (as of 05/16/2023). In the past 52-week period, it has traded between $96.46 and $114.21.

FXH has a beta of 0.80 and a standard deviation of 18.45% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 84 holdings, it effectively diversifies company-specific risks.

Alternatives

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 $17.13 billion in assets, Health Care Select Sector SPDR ETF has $40.30 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.

bottom line

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

HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report

Insulet Corporation (PODD) : Free Stock Analysis Report

Health Care Select Sector SPDR ETF (XLV): ETF Research Reports

Vanguard Health Care ETF (VHT): ETF Research Reports

Catalent, Inc. (CTLT) : Free Stock Analysis Report

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