Designed to provide broad exposure to the Health Care ETFs category of the market, the First Trust Health Care AlphaDEX ETF (FXH) is a smart beta exchange traded fund launched on 05/08/2007.

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.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

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.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

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 $1.24 billion, which makes 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.62%, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.43%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

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

Taking into account individual holdings, Universal Health Services, Inc. (class B) (UHS) accounts for about 2.66% of the fund's total assets, followed by Tenet Healthcare Corporation (THC) and Roivant Sciences Ltd. (ROIV).

The top 10 holdings account for about 23.18% of total assets under management.

Performance and Risk

The ETF return is roughly 6.58% so far this year and was up about 14.40% in the last one year (as of 10/03/2024). In the past 52-week period, it has traded between $90.04 and $113.83.

The fund has a beta of 0.76 and standard deviation of 16.52% for the trailing three-year period, which makes FXH a medium risk choice in this particular space. With about 78 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Health Care AlphaDEX ETF is an excellent option for investors seeking to outperform the Health Care ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Vanguard Health Care ETF (VHT) tracks 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 $18.47 billion in assets, Health Care Select Sector SPDR ETF has $41.62 billion. VHT has an expense ratio of 0.10% and XLV 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 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 latest developments in the ETF investing universe, please visit Zacks ETF Center.

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First Trust Health Care AlphaDEX ETF (FXH): ETF Research Reports

Universal Health Services, Inc. (UHS) : Free Stock Analysis Report

Tenet Healthcare Corporation (THC) : Free Stock Analysis Report

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

Vanguard Health Care ETF (VHT): ETF Research Reports

Roivant Sciences Ltd. (ROIV) : Free Stock Analysis Report

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