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Should You Invest in the First Trust Utilities AlphaDEX ETF (FXU)?

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Launched on 05/08/2007, the First Trust Utilities AlphaDEX ETF (FXU - Free Report) is a passively managed exchange traded fund designed to provide a broad exposure to the Utilities - Broad segment of the equity market.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Utilities - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 4, placing it in top 25%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $335.03 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.

Costs

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 one of the most expensive products in the space.

It has a 12-month trailing dividend yield of 2.08%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Utilities sector--about 89% of the portfolio. Industrials and Energy round out the top three.

Looking at individual holdings, Ugi Corporation (UGI - Free Report) accounts for about 4.49% of total assets, followed by Avangrid, Inc. (AGR - Free Report) and Oge Energy Corp. (OGE - Free Report) .

The top 10 holdings account for about 39.67% of total assets under management.

Performance and Risk

The ETF has lost about -2.53% so far this year and is up about 9.09% in the last one year (as of 02/27/2023). In that past 52-week period, it has traded between $29.52 and $36.10.

The ETF has a beta of 0.60 and standard deviation of 25.80% 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 sports a Zacks ETF Rank of 4 (Sell), which is based on expected asset class return, expense ratio, and momentum, among other factors. FXU, then, is not a great choice for investors seeking exposure to the Utilities/Infrastructure ETFs segment of the market. Instead, there are better ETFs in the space to 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 $5.40 billion in assets, Utilities Select Sector SPDR ETF has $15 billion. VPU has an expense ratio of 0.10% and XLU 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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