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Should You Invest in the First Trust Energy AlphaDEX ETF (FXN)?

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Looking for broad exposure to the Energy - Broad segment of the equity market? You should consider the First Trust Energy AlphaDEX ETF (FXN - 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. Energy - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 12, placing it in bottom 25%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $2.01 billion, making it one of the larger ETFs attempting to match the performance of the Energy - Broad segment of the equity market. FXN 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.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.61%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 2.20%.

Sector Exposure and Top Holdings

ETFs offer a 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.

This ETF has heaviest allocation in the Energy sector--about 96.70% of the portfolio.

Looking at individual holdings, Halliburton Company (HAL - Free Report) accounts for about 4.40% of total assets, followed by Pdc Energy, Inc. and Targa Resources Corp. (TRGP - Free Report) .

The top 10 holdings account for about 40.03% of total assets under management.

Performance and Risk

The ETF has gained about 3.57% so far this year and it's up approximately 42.89% in the last one year (as of 01/24/2023). In that past 52-week period, it has traded between $13.18 and $19.40.

The ETF has a beta of 1.81 and standard deviation of 49.15% for the trailing three-year period, making it a high risk choice in the space. With about 41 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust Energy AlphaDEX ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FXN is an outstanding option for investors seeking exposure to the Energy ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

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 $8.65 billion in assets, Energy Select Sector SPDR ETF has $42.29 billion. VDE has an expense ratio of 0.10% and XLE charges 0.10%.

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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