Looking for broad exposure to the Utilities - Broad segment of the equity market? You should consider the First Trust Utilities AlphaDEX ETF (FXU), a passively managed exchange traded fund launched on 05/08/2007.
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are 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. 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 $283.70 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
When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.
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 2.44%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Utilities sector--about 94.50% of the portfolio.
Looking at individual holdings, Evergy, Inc. (EVRG) accounts for about 4.30% of total assets, followed by Entergy Corporation (ETR) and National Fuel Gas Company (NFG).
The top 10 holdings account for about 39.28% of total assets under management.
Performance and Risk
So far this year, FXU has gained about 18.60%, and is up about 23.70% in the last one year (as of 09/16/2024). During this past 52-week period, the fund has traded between $27.35 and $37.18.
The ETF has a beta of 0.67 and standard deviation of 17.45% 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 suitable option 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) 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 $6.51 billion in assets, Utilities Select Sector SPDR ETF has $18.38 billion. VPU has an expense ratio of 0.10% and XLU charges 0.09%.
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
National Fuel Gas Company (NFG) : Free Stock Analysis Report
Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
Vanguard Utilities ETF (VPU): ETF Research Reports
Evergy Inc. (EVRG) : 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.
