This is a rules-based sector ETF that uses the AlphaDEX method to evaluate and select US materials companies on value and growth metrics. It overweights materials companies with strong fundamental metrics, offering exposure that differs from simple market-cap weighting.

It suits investors who want to add factor screening to their materials sector exposure and can tolerate sector concentration and cyclical volatility.

It is a passive (index-tracking) ETF managed by First Trust.

The fund applies the AlphaDEX method, which evaluates US materials companies on value and growth metrics, selects the higher-scoring stocks, and assigns tiered weights based on those scores. Moving away from simple market-cap weighting, it adds weight to materials companies with strong fundamental metrics, following a rules-based strategy that pursues a distinct risk and return profile.

• Selection of materials stocks based on value and growth metrics
• Weight allocation that differs from market-cap weighting

Assets under management (AUM) stand at $358.4M, and the expense ratio is 0.64% per year.

Compared with simple market-cap-weighted materials sector ETFs, the factor-screening method and the portfolio composition are the main points of comparison.

Materials stocks react sensitively to commodity prices, the global economy and industrial demand. They tend to be strong when economic recovery and commodity demand are in focus, and weak when the economy slows. Because of its factor-screening structure, the fund's performance can diverge from market-cap-weighted indexes.

Fund flows into and out of materials stocks vary with commodity price outlooks, the economic phase and industrial demand, and money sometimes moves into the materials sector when expectations of an economic recovery grow. It is also worth noting that performance can differ significantly depending on the commodity cycle and the economic trend.

Factor screening and materials sector exposure are its strengths, while sector and economic sensitivity, tracking differences and commodity volatility are considerations.

For exposure to global materials companies, direct substitutes include MXI, and for investing in materials sector momentum, products such as PYZ are also worth comparing. For a focus on metals and mining, products such as XME can also be considered. The three products shown in the table, XLB, VAW and IYM, all invest in the US materials sector but are market-cap weighted, so they differ in that they have no factor screening. What sets this ETF apart is that it adds value and growth factor screening to the materials sector.

Here are the points to review before investing in FXZ. Factor screening is attractive, but sector and economic sensitivity, tracking differences and commodity volatility need to be checked in advance. It is also a good idea to compare it with simple market-cap-weighted materials products.

An economic slowdown, falling commodity prices and tracking differences from factor screening are the main variables for short-term performance, and because of its concentration in a single materials sector and commodity volatility, losses can be large during market crashes. Performance depends heavily on the economic cycle.

This is a suitable candidate for investors who want to add factor screening to their materials sector exposure. If simple market-cap-weighted materials exposure is the priority, consider products such as XLB and VAW. If you want value and growth factor screening, it is advisable to compare this product alongside them before choosing.