Launched on 05/08/2007, the First Trust Materials AlphaDEX ETF (FXZ) is a smart beta exchange traded fund offering broad exposure to the Materials ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide 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.

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 $430.66 million, which makes it one of the average sized ETFs in the Materials ETFs. Before fees and expenses, FXZ seeks to match the performance of the StrataQuant Materials Index.

The StrataQuant Materials 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.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.62%.

FXZ's 12-month trailing dividend yield is 2.01%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

FXZ's heaviest allocation is in the Materials sector, which is about 91.60% of the portfolio.

Taking into account individual holdings, United States Steel Corporation (X) accounts for about 5.30% of the fund's total assets, followed by Steel Dynamics, Inc. (STLD) and Nucor Corporation (NUE).