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Is First Trust Utilities AlphaDEX ETF (FXU) a Strong ETF Right Now?
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A smart beta exchange traded fund, the First Trust Utilities AlphaDEX ETF (FXU - Free Report) debuted on 05/08/2007, and offers broad exposure to the Utilities/Infrastructure ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
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.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $241.44 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. FXU seeks to match the performance of the StrataQuant Utilities Index before fees and expenses.
The StrataQuant Utilities Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology.
Cost & Other Expenses
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.
Operating expenses on an annual basis are 0.64% for FXU, making it one of the most expensive products in the space.
FXU's 12-month trailing dividend yield is 2.38%.
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.
FXU's heaviest allocation is in the Utilities sector, which is about 88.30% of the portfolio. Its Industrials and Energy round out the top three.
When you look at individual holdings, Nrg Energy, Inc. (NRG - Free Report) accounts for about 4.73% of the fund's total assets, followed by Vistra Corp. (VST - Free Report) and Pg&e Corporation (PCG - Free Report) .
The top 10 holdings account for about 40.56% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Utilities AlphaDEX ETF has lost about -7.69% so far, and is down about -12.51% over the last 12 months (as of 09/11/2023). FXU has traded between $29.52 and $36.10 in this past 52-week period.
FXU has a beta of 0.62 and standard deviation of 17.39% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 41 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Utilities AlphaDEX ETF is not a suitable option for investors seeking to outperform the Utilities/Infrastructure ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
Vanguard Utilities ETF (VPU - Free Report) tracks MSCI US Investable Market Utilities 25/50 Index and the Utilities Select Sector SPDR ETF (XLU - Free Report) tracks Utilities Select Sector Index. Vanguard Utilities ETF has $5.09 billion in assets, Utilities Select Sector SPDR ETF has $14.53 billion. VPU has an expense ratio of 0.10% and XLU charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Utilities/Infrastructure ETFs.
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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Is First Trust Utilities AlphaDEX ETF (FXU) a Strong ETF Right Now?
A smart beta exchange traded fund, the First Trust Utilities AlphaDEX ETF (FXU - Free Report) debuted on 05/08/2007, and offers broad exposure to the Utilities/Infrastructure ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
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.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $241.44 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. FXU seeks to match the performance of the StrataQuant Utilities Index before fees and expenses.
The StrataQuant Utilities Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology.
Cost & Other Expenses
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.
Operating expenses on an annual basis are 0.64% for FXU, making it one of the most expensive products in the space.
FXU's 12-month trailing dividend yield is 2.38%.
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.
FXU's heaviest allocation is in the Utilities sector, which is about 88.30% of the portfolio. Its Industrials and Energy round out the top three.
When you look at individual holdings, Nrg Energy, Inc. (NRG - Free Report) accounts for about 4.73% of the fund's total assets, followed by Vistra Corp. (VST - Free Report) and Pg&e Corporation (PCG - Free Report) .
The top 10 holdings account for about 40.56% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Utilities AlphaDEX ETF has lost about -7.69% so far, and is down about -12.51% over the last 12 months (as of 09/11/2023). FXU has traded between $29.52 and $36.10 in this past 52-week period.
FXU has a beta of 0.62 and standard deviation of 17.39% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 41 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Utilities AlphaDEX ETF is not a suitable option for investors seeking to outperform the Utilities/Infrastructure ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
Vanguard Utilities ETF (VPU - Free Report) tracks MSCI US Investable Market Utilities 25/50 Index and the Utilities Select Sector SPDR ETF (XLU - Free Report) tracks Utilities Select Sector Index. Vanguard Utilities ETF has $5.09 billion in assets, Utilities Select Sector SPDR ETF has $14.53 billion. VPU has an expense ratio of 0.10% and XLU charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Utilities/Infrastructure ETFs.
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.