Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Utilities AlphaDEX ETF (
FXU Quick Quote 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.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $455.97 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. 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.
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 FXU, making it one of the most expensive products in the space.
FXU's 12-month trailing dividend yield is 1.86%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
FXU's heaviest allocation is in the Utilities sector, which is about 92.70% of the portfolio.
Taking into account individual holdings, Ugi Corporation (
UGI Quick Quote UGI - Free Report) accounts for about 4.84% of the fund's total assets, followed by Nrg Energy, Inc. ( NRG Quick Quote NRG - Free Report) and Avangrid, Inc. ( AGR Quick Quote AGR - Free Report) .
Its top 10 holdings account for approximately 41.23% of FXU's total assets under management.
Performance and Risk
The ETF has added roughly 9.23% and is up about 12.54% so far this year and in the past one year (as of 08/24/2022), respectively. FXU has traded between $29.53 and $36.06 during this last 52-week period.
The ETF has a beta of 0.55 and standard deviation of 24.57% 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 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 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 $6.04 billion in assets, Utilities Select Sector SPDR ETF has $17.40 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.
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.