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Is First Trust Utilities AlphaDEX ETF (FXU) a Strong ETF Right Now?
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A smart beta exchange traded fund, the First Trust Utilities AlphaDEX ETF (FXU - Free Report) debuted on 05/08/2007, and offers 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
Managed by First Trust Advisors, FXU has amassed assets over $221.97 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. Before fees and expenses, FXU seeks to match the performance of the StrataQuant Utilities Index.
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.
With one of the most expensive products in the space, this ETF has annual operating expenses of 0.64%.
FXU's 12-month trailing dividend yield is 2.62%.
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.
This ETF has heaviest allocation in the Utilities sector - about 90.40% of the portfolio.
When you look at individual holdings, Vistra Corp. (VST - Free Report) accounts for about 4.37% of the fund's total assets, followed by Public Service Enterprise Group Incorporated (PEG - Free Report) and Hawaiian Electric Industries, Inc. (HE - Free Report) .
The top 10 holdings account for about 39.66% of total assets under management.
Performance and Risk
The ETF has gained about 0.65% and is up roughly 3.93% so far this year and in the past one year (as of 03/26/2024), respectively. FXU has traded between $27.35 and $33.61 during this last 52-week period.
FXU has a beta of 0.66 and standard deviation of 17.43% for the trailing three-year period, which makes the fund a medium risk choice in the 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 billion in assets, Utilities Select Sector SPDR ETF has $12.26 billion. VPU has an expense ratio of 0.10% and XLU charges 0.09%.
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?
A smart beta exchange traded fund, the First Trust Utilities AlphaDEX ETF (FXU - Free Report) debuted on 05/08/2007, and offers 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
Managed by First Trust Advisors, FXU has amassed assets over $221.97 million, making it one of the average sized ETFs in the Utilities/Infrastructure ETFs. Before fees and expenses, FXU seeks to match the performance of the StrataQuant Utilities Index.
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.
With one of the most expensive products in the space, this ETF has annual operating expenses of 0.64%.
FXU's 12-month trailing dividend yield is 2.62%.
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.
This ETF has heaviest allocation in the Utilities sector - about 90.40% of the portfolio.
When you look at individual holdings, Vistra Corp. (VST - Free Report) accounts for about 4.37% of the fund's total assets, followed by Public Service Enterprise Group Incorporated (PEG - Free Report) and Hawaiian Electric Industries, Inc. (HE - Free Report) .
The top 10 holdings account for about 39.66% of total assets under management.
Performance and Risk
The ETF has gained about 0.65% and is up roughly 3.93% so far this year and in the past one year (as of 03/26/2024), respectively. FXU has traded between $27.35 and $33.61 during this last 52-week period.
FXU has a beta of 0.66 and standard deviation of 17.43% for the trailing three-year period, which makes the fund a medium risk choice in the 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 billion in assets, Utilities Select Sector SPDR ETF has $12.26 billion. VPU has an expense ratio of 0.10% and XLU charges 0.09%.
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.