Should You Invest in the First Trust Energy AlphaDEX ETF (FXN)?
Designed to provide broad exposure to the Energy - Broad segment of the equity market, the First Trust Energy AlphaDEX ETF (FXN) is a passively managed exchange traded fund launched on 05/08/2007.
Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also 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. Energy - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 15, placing it in bottom 6%.
Index Details
The fund is sponsored by First Trust Advisors. It has amassed assets over $577.15 million, making it one of the larger ETFs attempting to match the performance of the Energy - Broad segment of the equity market. FXN 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.
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 0.61%, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 3.27%.
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 Energy sector--about 97.60% of the portfolio.
Looking at individual holdings, Southwestern Energy Company (SWN) accounts for about 4.93% of total assets, followed by Chesapeake Energy Corporation (CHK) and Pdc Energy, Inc. (PDCE).
The top 10 holdings account for about 42.35% of total assets under management.
Performance and Risk
The ETF has added roughly 3.08% and is up about 5.85% so far this year and in the past one year (as of 08/16/2023), respectively. FXN has traded between $14.30 and $19.40 during this last 52-week period.
The ETF has a beta of 1.83 and standard deviation of 34.81% 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 carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FXN is a sufficient option for those seeking exposure to the Energy ETFs area of the market. Investors might also want to consider some other ETF options in the space.
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 $8.30 billion in assets, Energy Select Sector SPDR ETF has $37.10 billion. VDE has an expense ratio of 0.10% and XLE charges 0.10%.
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 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
First Trust Energy AlphaDEX ETF (FXN): ETF Research Reports
Chesapeake Energy Corporation (CHK): Free Stock Analysis Report
Southwestern Energy Company (SWN): Free Stock Analysis Report
Energy Select Sector SPDR ETF (XLE): ETF Research Reports
Vanguard Energy ETF (VDE): ETF Research Reports