Should You Invest in the First Trust Materials AlphaDEX ETF (FXZ)?

The First Trust Materials AlphaDEX ETF (FXZ), with $217.17 million in assets, seeks to replicate the StrataQuant Materials Index and has a 0.61% expense ratio and a 1.90% dividend yield. The ETF is down -2.88% YTD and -19.58% over the past year, with its top 10 holdings accounting for 47.14% of its assets, and carries a Zacks ETF Rank of 3 (Hold), suggesting a neutral outlook.

Analysis

The First Trust Materials AlphaDEX ETF (FXZ), a passively managed fund with $217.17 million in assets, offers exposure to the Materials - Broad equity market segment by tracking the StrataQuant Materials Index, which employs an AlphaDEX screening methodology to select stocks from the Russell 1000 Index. The Materials - Broad sector is currently ranked in the top 31% by Zacks. FXZ's annual operating expenses are 0.61%, which is comparable to peers, and it offers a 1.90% trailing 12-month dividend yield. The ETF's portfolio is heavily concentrated in the Materials sector (91.30%), with its top 10 holdings, including Newmarket Corporation (5.41%), Steel Dynamics, Inc., and Newmont Corporation, constituting 47.14% of total assets. Recent performance has been weak, with a year-to-date loss of -2.88% and a significant decline of -19.58% over the past year as of May 28, 2025. The ETF exhibits a beta of 1.15 and a three-year standard deviation of 24.45%, indicating medium risk, and its 37 holdings suggest a more concentrated exposure than some alternatives. Despite the underlying sector's favorable ranking, FXZ carries a Zacks ETF Rank of 3 (Hold). Alternatives such as the Materials Select Sector SPDR ETF (XLB) and FlexShares Morningstar Global Upstream Natural Resources ETF (GUNR) offer significantly larger asset bases and, in the case of XLB, a considerably lower expense ratio of 0.08%.

Key Decisions for Investors

• Given the 'Hold' rating and recent significant underperformance (-19.58% over the last year), investors should carefully evaluate if FXZ's AlphaDEX strategy justifies its 0.61% expense ratio compared to lower-cost alternatives like XLB, especially in light of its medium risk profile and concentrated holdings.
• Investors considering new positions in the Materials sector should weigh FXZ's potential for alpha generation via its proprietary index against its recent performance and higher costs, versus more diversified and cheaper options.
• Current holders may consider maintaining their positions if they believe in the long-term prospects of the AlphaDEX methodology and the Materials sector's current favorable ranking, but should monitor for performance improvements given the recent downturn and the availability of significantly cheaper passive alternatives.