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Is First Trust Energy AlphaDEX ETF (FXN) a Strong ETF Right Now?
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Designed to provide broad exposure to the Energy ETFs category of the market, the First Trust Energy AlphaDEX ETF (FXN - Free Report) is a smart beta exchange traded fund launched on 05/08/2007.
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.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
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.
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. FXN has been able to amass assets over $436.48 million, making it one of the larger ETFs in the Energy ETFs. This particular fund seeks to match the performance of the StrataQuant Energy Index before fees and expenses.
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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for this ETF are 0.64%, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 0.83%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FXN, it has heaviest allocation in the Energy sector --about 88.90% of the portfolio --while Information Technology and Industrials round out the top three.
Taking into account individual holdings, Diamondback Energy, Inc. (FANG - Free Report) accounts for about 4.91% of the fund's total assets, followed by Cheniere Energy, Inc. (LNG - Free Report) and Pioneer Natural Resources Company (PXD - Free Report) .
FXN's top 10 holdings account for about 45% of its total assets under management.
Performance and Risk
The ETF has added roughly 61.73% and it's up approximately 98.25% so far this year and in the past one year (as of 11/16/2021), respectively. FXN has traded between $6.85 and $13.05 during this last 52-week period.
The fund has a beta of 2.26 and standard deviation of 47.98% for the trailing three-year period, which makes FXN a high risk choice in this particular 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 $5.99 billion in assets, Energy Select Sector SPDR ETF has $27.27 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?
Designed to provide broad exposure to the Energy ETFs category of the market, the First Trust Energy AlphaDEX ETF (FXN - Free Report) is a smart beta exchange traded fund launched on 05/08/2007.
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.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
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.
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. FXN has been able to amass assets over $436.48 million, making it one of the larger ETFs in the Energy ETFs. This particular fund seeks to match the performance of the StrataQuant Energy Index before fees and expenses.
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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for this ETF are 0.64%, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 0.83%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FXN, it has heaviest allocation in the Energy sector --about 88.90% of the portfolio --while Information Technology and Industrials round out the top three.
Taking into account individual holdings, Diamondback Energy, Inc. (FANG - Free Report) accounts for about 4.91% of the fund's total assets, followed by Cheniere Energy, Inc. (LNG - Free Report) and Pioneer Natural Resources Company (PXD - Free Report) .
FXN's top 10 holdings account for about 45% of its total assets under management.
Performance and Risk
The ETF has added roughly 61.73% and it's up approximately 98.25% so far this year and in the past one year (as of 11/16/2021), respectively. FXN has traded between $6.85 and $13.05 during this last 52-week period.
The fund has a beta of 2.26 and standard deviation of 47.98% for the trailing three-year period, which makes FXN a high risk choice in this particular 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 $5.99 billion in assets, Energy Select Sector SPDR ETF has $27.27 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.