If you're interested in broad exposure to the Utilities - Broad segment of the equity market, look no further than the First Trust Utilities AlphaDEX ETF (
FXU Quick Quote FXU - Free Report) , a passively managed exchange traded fund launched on 05/08/2007.
An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.
Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Utilities - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 7, placing it in top 44%.
The fund is sponsored by First Trust Advisors. It has amassed assets over $345.10 million, making it one of the average sized ETFs attempting to match the performance of the Utilities - Broad segment of the equity market. FXU seeks to match the performance of the StrataQuant Utilities Index before fees and expenses.
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.
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for this ETF are 0.64%, making it the most expensive product in the space.
It has a 12-month trailing dividend yield of 2.36%.
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.
This ETF has heaviest allocation in the Utilities sector--about 92.60% of the portfolio.
Looking at individual holdings, American Electric Power Company, Inc. (
AEP Quick Quote AEP - Free Report) accounts for about 4.45% of total assets, followed by Exelon Corporation ( EXC Quick Quote EXC - Free Report) and Pinnacle West Capital Corporation ( PNW Quick Quote PNW - Free Report) .
The top 10 holdings account for about 39.92% of total assets under management.
Performance and Risk
The ETF has lost about -6.73% and is down about -0.32% so far this year and in the past one year (as of 06/20/2022), respectively. FXU has traded between $29.53 and $35.25 during this last 52-week period.
The ETF has a beta of 0.53 and standard deviation of 24.37% 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.
First Trust Utilities AlphaDEX ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FXU is a good option for those seeking exposure to the Utilities/Infrastructure ETFs area of the market. Investors might also want to consider some other ETF options in the space.
Vanguard Utilities ETF (
VPU Quick Quote VPU - Free Report) tracks MSCI US Investable Market Utilities 25/50 Index and the Utilities Select Sector SPDR ETF ( XLU Quick Quote XLU - Free Report) tracks Utilities Select Sector Index. Vanguard Utilities ETF has $5.25 billion in assets, Utilities Select Sector SPDR ETF has $14.71 billion. VPU has an expense ratio of 0.10% and XLU charges 0.10%. Bottom Line
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