First Trust Consumer Discretionary AlphaDEX Fund (FXD) seeks to track the StrataQuant Consumer Discretionary Index, which measures U.S. consumer discretionary stocks selected and weighted using a quantitative methodology that ranks companies on growth and value factors rather than market capitalization.
How It Works
FXD employs First Trust's proprietary AlphaDEX methodology, which scores consumer discretionary stocks on growth factors (sales growth, one-year sales growth) and value factors (book value to price, cash flow to price). The top-scoring stocks receive higher weightings than traditional market-cap approaches would assign. The fund rebalances quarterly to maintain factor exposures and typically holds 40-80 consumer discretionary companies including retailers, restaurants, media companies, and automotive firms.
Key Features
- Uses quantitative factor-based weighting instead of market-cap weighting to potentially outperform traditional consumer discretionary indexes
- Focuses exclusively on consumer discretionary sector, providing concentrated exposure to economic growth and consumer spending trends
- Quarterly rebalancing maintains factor discipline while managing turnover costs compared to more frequent rebalancing strategies
Risks
- This ETF can lose significant value during economic recessions when consumer spending drops, as discretionary purchases are first to be cut
- Factor-based weighting may underperform market-cap approaches during certain market cycles, creating tracking error versus broad consumer discretionary exposure
- Sector concentration risk means the fund lacks diversification across other economic sectors, amplifying volatility during consumer discretionary downturns
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for investors with medium-to-high risk tolerance and 3+ year time horizons seeking tactical exposure to consumer discretionary trends. Appropriate for those wanting factor-based consumer sector exposure rather than broad market diversification.