News

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?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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.

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.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is sponsored by First Trust Advisors. It has amassed assets over $555.95 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

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 cousins, other things remaining the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.62%.

It has a 12-month trailing dividend yield of 3.02%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

FXN's heaviest allocation is in the Energy sector, which is about 97.60% of the portfolio.

Looking at individual holdings, Southwestern Energy Company (SWN) accounts for about 4.33% of total assets, followed by Coterra Energy Inc. (CTRA) and Hf Sinclair Corp. (DINO).

The top 10 holdings account for about 39.44% of total assets under management.

Performance and Risk

Year-to-date, the First Trust Energy AlphaDEX ETF has added roughly 2.34% so far, and it's up approximately 8.68% over the last 12 months (as of 03/01/2024). FXN has traded between $14.30 and $18.25 in this past 52-week period.

The fund has a beta of 1.67 and standard deviation of 30.58% for the trailing three-year period, which makes FXN a high risk choice in this particular 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 $8.23 billion in assets, Energy Select Sector SPDR ETF has $35.82 billion. VDE has an expense ratio of 0.10% and XLE 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 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.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.

Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.