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Is First Trust Energy AlphaDEX ETF (FXN) a Strong ETF Right Now?
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The First Trust Energy AlphaDEX ETF (FXN - Free Report) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Energy ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
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 managed by First Trust Advisors, and has been able to amass over $496.61 million, which makes it one of the larger ETFs in the Energy ETFs. This particular fund, before fees and expenses, seeks to match the performance of the StrataQuant Energy Index.
The StrataQuant Energy 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 this ETF, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 0.82%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Energy sector - about 91% of the portfolio.
Looking at individual holdings, Diamondback Energy, Inc. (FANG - Free Report) accounts for about 4.91% of total assets, followed by Cheniere Energy, Inc. (LNG - Free Report) and Pioneer Natural Resources Company (PXD - Free Report) .
Its top 10 holdings account for approximately 45% of FXN's total assets under management.
Performance and Risk
The ETF has added about 4% and is up roughly 45.08% so far this year and in the past one year (as of 01/25/2022), respectively. FXN has traded between $8.33 and $13.48 during this last 52-week period.
The ETF has a beta of 2.23 and standard deviation of 47.61% for the trailing three-year period, making it a high risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Energy AlphaDEX ETF is a reasonable option for investors seeking to outperform the Energy ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Energy ETF (VDE - Free Report) tracks MSCI US Investable Market Energy 25/50 Index and the Energy Select Sector SPDR ETF (XLE - Free Report) tracks Energy Select Sector Index. Vanguard Energy ETF has $6.56 billion in assets, Energy Select Sector SPDR ETF has $31.49 billion. VDE has an expense ratio of 0.10% and XLE charges 0.12%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Energy 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 Energy AlphaDEX ETF (FXN) a Strong ETF Right Now?
The First Trust Energy AlphaDEX ETF (FXN - Free Report) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Energy ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
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 managed by First Trust Advisors, and has been able to amass over $496.61 million, which makes it one of the larger ETFs in the Energy ETFs. This particular fund, before fees and expenses, seeks to match the performance of the StrataQuant Energy Index.
The StrataQuant Energy 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 this ETF, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 0.82%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Energy sector - about 91% of the portfolio.
Looking at individual holdings, Diamondback Energy, Inc. (FANG - Free Report) accounts for about 4.91% of total assets, followed by Cheniere Energy, Inc. (LNG - Free Report) and Pioneer Natural Resources Company (PXD - Free Report) .
Its top 10 holdings account for approximately 45% of FXN's total assets under management.
Performance and Risk
The ETF has added about 4% and is up roughly 45.08% so far this year and in the past one year (as of 01/25/2022), respectively. FXN has traded between $8.33 and $13.48 during this last 52-week period.
The ETF has a beta of 2.23 and standard deviation of 47.61% for the trailing three-year period, making it a high risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Energy AlphaDEX ETF is a reasonable option for investors seeking to outperform the Energy ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Energy ETF (VDE - Free Report) tracks MSCI US Investable Market Energy 25/50 Index and the Energy Select Sector SPDR ETF (XLE - Free Report) tracks Energy Select Sector Index. Vanguard Energy ETF has $6.56 billion in assets, Energy Select Sector SPDR ETF has $31.49 billion. VDE has an expense ratio of 0.10% and XLE charges 0.12%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Energy 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.