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

The First Trust Materials AlphaDEX ETF (FXZ), a smart beta ETF with $209.25 million in assets, seeks to outperform the materials sector by tracking the StrataQuant Materials Index. FXZ's expense ratio is 0.61% with a 1.92% trailing dividend yield; however, the fund is down -3.80% YTD and -18.49% over the last year as of May 30, 2025, with top holdings including Newmarket Corporation (5.41%), Steel Dynamics, Inc., and Newmont Corporation.

Analysis

The First Trust Materials AlphaDEX ETF (FXZ), a smart beta fund with $209.25 million in assets under management, aims to outperform the materials sector by tracking the StrataQuant Materials Index, a modified equal-dollar weighted index using the AlphaDEX screening methodology. Despite its objective of generating positive alpha, FXZ has demonstrated significant underperformance, losing -3.80% year-to-date and a substantial -18.49% over the last year as of May 30, 2025. The ETF's expense ratio of 0.61% is comparable to peers, and it offers a 1.92% trailing dividend yield. Its portfolio is heavily concentrated in the Materials sector (91.20%), with Newmarket Corporation (NEU) being the largest holding at 5.41%; the top 10 holdings account for a notable 47.14% of total assets across its 37 holdings, suggesting a more concentrated risk profile than some peers. FXZ exhibits a beta of 1.15 and a three-year standard deviation of 24.42%, positioning it as a medium-risk investment within its category. The provided sentiment for FXZ is moderately negative (-0.4), contrasting with more positive sentiment for alternative ETFs like the Materials Select Sector SPDR ETF (XLB), which also boasts a significantly lower expense ratio (0.08%) and larger asset base.

Key Decisions for Investors

• Given FXZ's significant recent underperformance of -18.49% over the past year and its moderately negative sentiment score, investors should exercise caution and critically evaluate its AlphaDEX methodology's current effectiveness in the materials sector.
• Investors should weigh FXZ's 0.61% expense ratio and concentrated holdings against potentially lower-cost, more diversified, and better-performing alternatives like XLB, especially if seeking broad, cost-effective materials exposure.
• Consider monitoring FXZ's performance relative to its benchmark and peers closely, and investigate the underlying drivers for the StrataQuant Materials Index's stock selection before committing new capital or increasing existing positions.