Making its debut on 05/08/2007, smart beta exchange traded fund First Trust Energy AlphaDEX ETF (FXN) provides investors broad exposure to the Energy 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.
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.
If you’re the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
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.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Managed by First Trust Advisors, FXN has amassed assets over $712.20 million, making it one of the larger ETFs in the Energy ETFs. This particular fund seeks to match the performance of the StrataQuant Energy Index before fees and expenses.
The StrataQuant Energy 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.
Annual operating expenses for FXN are 0.61%, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 3.71%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FXN, it has heaviest allocation in the Energy sector –about 96.80% of the portfolio.
Looking at individual holdings, Halliburton Company (HAL) accounts for about 4.40% of total assets, followed by Pdc Energy, Inc. (PDCE) and Targa Resources Corp. (TRGP).
Its top 10 holdings account for approximately 40.03% of FXN’s total assets under management.
Performance and Risk
The ETF has lost about -6.91% and is up roughly 2.66% so far this year and in the past one year (as of 04/10/2023), respectively. FXN has traded between $14.03 and $19.40 during this last 52-week period.
The ETF has a beta of 1.81 and standard deviation of 41.83% for the trailing three-year period, making it a high risk choice in the space. With about 41 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Energy AlphaDEX ETF is not a suitable option for investors seeking to outperform the Energy ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
Vanguard Energy ETF (VDE) tracks MSCI US Investable Market Energy 25/50 Index and the Energy Select Sector SPDR ETF (XLE) tracks Energy Select Sector Index. Vanguard Energy ETF has $7.85 billion in assets, Energy Select Sector SPDR ETF has $39.71 billion. VDE has an expense ratio of 0.10% and XLE 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 Energy 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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First Trust Energy AlphaDEX ETF (FXN): ETF Research Reports
Halliburton Company (HAL) : Free Stock Analysis Report
Energy Select Sector SPDR ETF (XLE): ETF Research Reports
PDC Energy, Inc. (PDCE) : Free Stock Analysis Report
Targa Resources, Inc. (TRGP) : Free Stock Analysis Report
Vanguard Energy ETF (VDE): ETF Research Reports
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