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Is First Trust Utilities AlphaDEX ETF (FXU) a Strong ETF Right Now?
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Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Utilities AlphaDEX ETF (FXU - Free Report) provides investors 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.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FXU has been able to amass assets over $243.04 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. Before fees and expenses, this particular fund seeks to match the performance of the StrataQuant Utilities Index.
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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
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 which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FXU, it has heaviest allocation in the Utilities sector --about 93.30% of the portfolio.
Taking into account individual holdings, Vistra Corp. (VST - Free Report) accounts for about 6.68% of the fund's total assets, followed by Avangrid, Inc. (AGR - Free Report) and Public Service Enterprise Group Incorporated (PEG - Free Report) .
The top 10 holdings account for about 41.68% of total assets under management.
Performance and Risk
The ETF return is roughly 10.94% and was up about 14.42% so far this year and in the past one year (as of 06/03/2024), respectively. FXU has traded between $27.35 and $35.11 during this last 52-week period.
FXU has a beta of 0.65 and standard deviation of 17.57% 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 $5.69 billion in assets, Utilities Select Sector SPDR ETF has $13.64 billion. VPU has an expense ratio of 0.10% and XLU charges 0.09%.
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?
Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Utilities AlphaDEX ETF (FXU - Free Report) provides investors 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.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FXU has been able to amass assets over $243.04 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. Before fees and expenses, this particular fund seeks to match the performance of the StrataQuant Utilities Index.
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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
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 which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FXU, it has heaviest allocation in the Utilities sector --about 93.30% of the portfolio.
Taking into account individual holdings, Vistra Corp. (VST - Free Report) accounts for about 6.68% of the fund's total assets, followed by Avangrid, Inc. (AGR - Free Report) and Public Service Enterprise Group Incorporated (PEG - Free Report) .
The top 10 holdings account for about 41.68% of total assets under management.
Performance and Risk
The ETF return is roughly 10.94% and was up about 14.42% so far this year and in the past one year (as of 06/03/2024), respectively. FXU has traded between $27.35 and $35.11 during this last 52-week period.
FXU has a beta of 0.65 and standard deviation of 17.57% 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 $5.69 billion in assets, Utilities Select Sector SPDR ETF has $13.64 billion. VPU has an expense ratio of 0.10% and XLU charges 0.09%.
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.