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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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking 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.
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
Managed by First Trust Advisors, FXU has amassed assets over $282 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. Before fees and expenses, FXU 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
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.
Operating expenses on an annual basis are 0.64% for this ETF, which makes it the most expensive product in the space.
It has a 12-month trailing dividend yield of 2.02%.
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.
FXU's heaviest allocation is in the Utilities sector, which is about 92.40% of the portfolio.
Taking into account individual holdings, American Electric Power Company, Inc. (AEP - Free Report) accounts for about 4.45% of the fund's total assets, followed by Exelon Corporation (EXC - Free Report) and Pinnacle West Capital Corporation (PNW - Free Report) .
The top 10 holdings account for about 39.92% of total assets under management.
Performance and Risk
So far this year, FXU has added roughly 9.02%, and is up about 15% in the last one year (as of 04/21/2022). During this past 52-week period, the fund has traded between $29.53 and $35.25.
The ETF has a beta of 0.54 and standard deviation of 23.96% 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 $6.41 billion in assets, Utilities Select Sector SPDR ETF has $15.67 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?
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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking 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.
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
Managed by First Trust Advisors, FXU has amassed assets over $282 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. Before fees and expenses, FXU 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
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.
Operating expenses on an annual basis are 0.64% for this ETF, which makes it the most expensive product in the space.
It has a 12-month trailing dividend yield of 2.02%.
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.
FXU's heaviest allocation is in the Utilities sector, which is about 92.40% of the portfolio.
Taking into account individual holdings, American Electric Power Company, Inc. (AEP - Free Report) accounts for about 4.45% of the fund's total assets, followed by Exelon Corporation (EXC - Free Report) and Pinnacle West Capital Corporation (PNW - Free Report) .
The top 10 holdings account for about 39.92% of total assets under management.
Performance and Risk
So far this year, FXU has added roughly 9.02%, and is up about 15% in the last one year (as of 04/21/2022). During this past 52-week period, the fund has traded between $29.53 and $35.25.
The ETF has a beta of 0.54 and standard deviation of 23.96% 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 $6.41 billion in assets, Utilities Select Sector SPDR ETF has $15.67 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.