Launched on 05/08/2007, the First Trust Utilities AlphaDEX ETF (FXU) is a smart beta exchange traded fund offering broad exposure to the Utilities/Infrastructure ETFs category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
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 $255.59 million, which makes it one of the average sized ETFs in the Utilities/Infrastructure ETFs. This particular fund, before fees and expenses, 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
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
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 2.57%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 96.80% of the portfolio, the fund has heaviest allocation to the Utilities sector.
When you look at individual holdings, Vistra Corp. (VST) accounts for about 5.05% of the fund's total assets, followed by Oge Energy Corp. (OGE) and Entergy Corporation (ETR).
Its top 10 holdings account for approximately 40.25% of FXU's total assets under management.
Performance and Risk
So far this year, FXU has added roughly 12.74%, and is up about 12.84% in the last one year (as of 08/05/2024). During this past 52-week period, the fund has traded between $27.35 and $35.40.
The ETF has a beta of 0.67 and standard deviation of 17.49% 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 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) tracks MSCI US Investable Market Utilities 25/50 Index and the Utilities Select Sector SPDR ETF (XLU) tracks Utilities Select Sector Index. Vanguard Utilities ETF has $5.94 billion in assets, Utilities Select Sector SPDR ETF has $16.17 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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Get it free >>First Trust Utilities AlphaDEX ETF (FXU): ETF Research Reports
Entergy Corporation (ETR) : Free Stock Analysis Report
OGE Energy Corporation (OGE) : Free Stock Analysis Report
Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
Vanguard Utilities ETF (VPU): ETF Research Reports
Vistra Corp. (VST) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
