That is not to say FXD is free of drawbacks. The fund can be used as a case study in proving the notion there is no such thing as a “perfect ETF.” FXD’s underlying index, the StrataQuant Consumer Discretionary Index, has outperformed the S&P 500 Consumer Discretionary Index by 200 basis points over the past five years, according to First Trust data. However, FXD’s three-year standard deviation is nearly 300 basis points higher than the S&P 500 Consumer Discretionary Index over the past three years. [How Smart Beta ETFs Compare to Traditional Rivals]
FXD does, however, offer tactical advantages and those advantages could shine bright if the consumer discretionary sector rebounds in earnest. Those advantages include a median market value of $8.9 billion among its holdings and a 13.3% weight to media stocks.
The market value trait could prove important if mid- and small-cap discretionary stocks establish leadership roles. As for the media exposure, media names have been beaten up this year, but it is worth noting a rebound is materializing for that sub-sector as the PowerShares Dynamic Media Portfolio (NYSEArca: PBS) is up 5.5% in the past month.
First Trust Consumer Discretionary AlphaDEX Fund
Tom Lydon’s clients own shares of Amazon.