Should You Invest in the First Trust Health Care AlphaDEX ETF (FXH)?

Designed to provide broad exposure to the Healthcare – Broad segment of the equity market, the First Trust Health Care AlphaDEX ETF (FXH) is a passively managed exchange traded fund launched on 05/08/2007.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Healthcare – Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 6, placing it in top 38%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.46 billion, making it one of the larger ETFs attempting to match the performance of the Healthcare – Broad segment of the equity market. FXH seeks to match the performance of the StrataQuant Health Care Index before fees and expenses.

The StrataQuant Health Care Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index.

Costs

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 0.61%, making it on par with most peer products in the space.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. 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.

Looking at individual holdings, United Therapeutics Corporation (UTHR) accounts for about 2.84% of total assets, followed by Vertex Pharmaceuticals Incorporated (VRTX) and Gilead Sciences, Inc. (GILD).

The top 10 holdings account for about 22.22% of total assets under management.

Performance and Risk

Year-to-date, the First Trust Health Care AlphaDEX ETF has lost about -16.70% so far, and is down about -18.68% over the last 12 months (as of 09/01/2022). FXH has traded between $97.16 and $128.11 in this past 52-week period.

The ETF has a beta of 0.83 and standard deviation of 23.38% for the trailing three-year period, making it a medium risk choice in the space. With about 86 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Health Care AlphaDEX ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FXH is a sufficient option for those seeking exposure to the Health Care ETFs area of the market. Investors might also want to consider some other ETF options in the space.

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 $15.79 billion in assets, Health Care Select Sector SPDR ETF has $37.80 billion. VHT has an expense ratio of 0.10% and XLV charges 0.10%.

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
 
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
 
Vertex Pharmaceuticals Incorporated (VRTX) : Free Stock Analysis Report
 
United Therapeutics Corporation (UTHR) : Free Stock Analysis Report
 
Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
 
Vanguard Health Care ETF (VHT): ETF Research Reports
 
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