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Is First Trust Utilities AlphaDEX ETF (FXU) a Strong ETF Right Now?
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The First Trust Utilities AlphaDEX ETF (FXU - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Utilities/Infrastructure 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.
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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
FXU is managed by First Trust Advisors, and this fund has amassed over $423.64 million, which makes it one of the average sized ETFs in the Utilities/Infrastructure ETFs. This particular fund, before fees and expenses, 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
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for FXU are 0.64%, which makes it one of the most expensive products in the space.
The fund has a 12-month trailing dividend yield of 2.03%.
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.
Representing 85.70% of the portfolio, the fund has heaviest allocation to the Utilities sector; Industrials and Energy round out the top three.
Taking into account individual holdings, Waste Management, Inc. (WM - Free Report) accounts for about 4.28% of the fund's total assets, followed by Vistra Corp. (VST - Free Report) and Republic Services, Inc. (RSG - Free Report) .
FXU's top 10 holdings account for about 40.26% of its total assets under management.
Performance and Risk
The ETF has lost about -2.43% so far this year and it's up approximately 2.84% in the last one year (as of 10/27/2022). In the past 52-week period, it has traded between $29.52 and $36.10.
The ETF has a beta of 0.58 and standard deviation of 25.35% for the trailing three-year period, making it 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 a reasonable option for investors seeking to outperform the Utilities/Infrastructure ETFs segment of the market. However, there are other ETFs in the space which investors could 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 $5.35 billion in assets, Utilities Select Sector SPDR ETF has $15.29 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?
The First Trust Utilities AlphaDEX ETF (FXU - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Utilities/Infrastructure 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.
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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
FXU is managed by First Trust Advisors, and this fund has amassed over $423.64 million, which makes it one of the average sized ETFs in the Utilities/Infrastructure ETFs. This particular fund, before fees and expenses, 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
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for FXU are 0.64%, which makes it one of the most expensive products in the space.
The fund has a 12-month trailing dividend yield of 2.03%.
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.
Representing 85.70% of the portfolio, the fund has heaviest allocation to the Utilities sector; Industrials and Energy round out the top three.
Taking into account individual holdings, Waste Management, Inc. (WM - Free Report) accounts for about 4.28% of the fund's total assets, followed by Vistra Corp. (VST - Free Report) and Republic Services, Inc. (RSG - Free Report) .
FXU's top 10 holdings account for about 40.26% of its total assets under management.
Performance and Risk
The ETF has lost about -2.43% so far this year and it's up approximately 2.84% in the last one year (as of 10/27/2022). In the past 52-week period, it has traded between $29.52 and $36.10.
The ETF has a beta of 0.58 and standard deviation of 25.35% for the trailing three-year period, making it 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 a reasonable option for investors seeking to outperform the Utilities/Infrastructure ETFs segment of the market. However, there are other ETFs in the space which investors could 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 $5.35 billion in assets, Utilities Select Sector SPDR ETF has $15.29 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.