A smart beta exchange traded fund, the First Trust Financials AlphaDEX ETF (FXO) debuted on 05/08/2007, and offers broad exposure to the Financials 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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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
The fund is managed by First Trust Advisors, and has been able to amass over $1.1 billion, which makes it one of the larger ETFs in the Financials ETFs. FXO seeks to match the performance of the StrataQuant Financials Index before fees and expenses.
The StrataQuant Financials 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
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.
Annual operating expenses for FXO are 0.60%, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 2.04%.
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.
For FXO, it has heaviest allocation in the Financials sector --about 99.5% of the portfolio.
When you look at individual holdings, Affiliated Managers Group, Inc. (AMG) accounts for about 1.8% of the fund's total assets, followed by T. Rowe Price Group, Inc. (TROW) and Factset Research Systems Inc. (FDS).
The top 10 holdings account for about 16.74% of total assets under management.
Performance and Risk
The ETF has added about 7.47% and it's up approximately 17.01% so far this year and in the past one year (as of 07/16/2026), respectively. FXO has traded between $54.46 and $64.64 during this last 52-week period.
The fund has a beta of 0.94 and standard deviation of 18.58% for the trailing three-year period, which makes FXO a medium risk choice in this particular space. With about 106 holdings, it effectively diversifies company-specific risk .
Alternatives
First Trust Financials AlphaDEX ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
Vanguard Financials Index Fund ETF Shares (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the State Street Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials Index Fund ETF Shares has $13.42 billion in assets, State Street Financial Select Sector SPDR ETF has $54.6 billion. VFH has an expense ratio of 0.09% and XLF 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 Financials ETFs
Bottom Line
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First Trust Financials AlphaDEX ETF (FXO): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).