Designed to provide broad exposure to the Utilities - Broad segment of the equity market, the First Trust Utilities AlphaDEX ETF (FXU) is 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 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 9, placing it in bottom 44%.
Index Details
The fund is sponsored by First Trust Advisors. It has amassed assets over $371.85 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
Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining 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 2.01%.
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.
This ETF has heaviest allocation in the Utilities sector--about 86.60% of the portfolio, followed by Industrials.
Looking at individual holdings, Waste Management, Inc. (WM) accounts for about 4.28% of total assets, followed by Vistra Corp. (VST) and Republic Services, Inc. (RSG).
The top 10 holdings account for about 40.26% of total assets under management.
Performance and Risk
So far this year, FXU has added about 4.46%, and was up about 7.01% in the last one year (as of 12/26/2022). During this past 52-week period, the fund has traded between $29.52 and $36.10.
The ETF has a beta of 0.60 and standard deviation of 25.67% 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.