A smart beta exchange traded fund, the First Trust NASDAQ Bank ETF (FTXO) debuted on 09/20/2016, and offers broad exposure to the Financials ETFs category of the market.
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
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.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
FTXO is managed by First Trust Advisors, and this fund has amassed over $206.72 million, which makes it one of the average sized ETFs in the Financials ETFs. Before fees and expenses, this particular fund seeks to match the performance of the Nasdaq US Smart Banks Index.
The Nasdaq US Smart Banks Index is a modified factor weighted index, designed to provide exposure to US companies within the banking industry.
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Annual operating expenses for FTXO are 0.60%, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 2.13%.
It is important to delve into an ETF’s holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FTXO, it has heaviest allocation in the Financials sector –about 100% of the portfolio.
When you look at individual holdings, Wells Fargo & Company (WFC) accounts for about 8.83% of the fund’s total assets, followed by Citigroup Inc. (C) and Bank Of America Corporation (BAC).
