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Is First Trust Utilities AlphaDEX ETF (FXU) a Strong ETF Right Now?
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The First Trust Utilities AlphaDEX ETF (FXU - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Utilities/Infrastructure ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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
FXU is managed by First Trust Advisors, and this fund has amassed over $318.02 million, which makes 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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.64% for FXU, making it one of the most expensive products in the space.
The fund has a 12-month trailing dividend yield of 2.07%.
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.
For FXU, it has heaviest allocation in the Utilities sector --about 88.70% of the portfolio --while Industrials and Energy round out the top three.
When you look at individual holdings, Pinnacle West Capital Corporation (PNW - Free Report) accounts for about 4.46% of the fund's total assets, followed by Nrg Energy, Inc. (NRG - Free Report) and Pg&e Corporation (PCG - Free Report) .
Its top 10 holdings account for approximately 39.86% of FXU's total assets under management.
Performance and Risk
The ETF has added roughly 0.71% so far this year and was up about 3.04% in the last one year (as of 05/02/2023). In the past 52-week period, it has traded between $29.52 and $36.10.
The fund has a beta of 0.62 and standard deviation of 18.64% for the trailing three-year period, which makes FXU a medium risk choice in this particular space. With about 41 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Utilities AlphaDEX ETF is not a suitable option for investors seeking to outperform the Utilities/Infrastructure ETFs segment of the market. Instead, there are other ETFs in the space which investors should 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 $5.44 billion in assets, Utilities Select Sector SPDR ETF has $16.18 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?
The First Trust Utilities AlphaDEX ETF (FXU - Free Report) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Utilities/Infrastructure ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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
FXU is managed by First Trust Advisors, and this fund has amassed over $318.02 million, which makes 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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.64% for FXU, making it one of the most expensive products in the space.
The fund has a 12-month trailing dividend yield of 2.07%.
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.
For FXU, it has heaviest allocation in the Utilities sector --about 88.70% of the portfolio --while Industrials and Energy round out the top three.
When you look at individual holdings, Pinnacle West Capital Corporation (PNW - Free Report) accounts for about 4.46% of the fund's total assets, followed by Nrg Energy, Inc. (NRG - Free Report) and Pg&e Corporation (PCG - Free Report) .
Its top 10 holdings account for approximately 39.86% of FXU's total assets under management.
Performance and Risk
The ETF has added roughly 0.71% so far this year and was up about 3.04% in the last one year (as of 05/02/2023). In the past 52-week period, it has traded between $29.52 and $36.10.
The fund has a beta of 0.62 and standard deviation of 18.64% for the trailing three-year period, which makes FXU a medium risk choice in this particular space. With about 41 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Utilities AlphaDEX ETF is not a suitable option for investors seeking to outperform the Utilities/Infrastructure ETFs segment of the market. Instead, there are other ETFs in the space which investors should 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 $5.44 billion in assets, Utilities Select Sector SPDR ETF has $16.18 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.