The First Trust Energy AlphaDEX ETF (FXN – Free Report) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Energy ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
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.
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
FXN is managed by First Trust Advisors, and this fund has amassed over $394.34 million, which makes it one of the average sized ETFs in the Energy ETFs. This particular fund, before fees and expenses, seeks to match the performance of the StrataQuant Energy Index.
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.
Operating expenses on an annual basis are 0.61% for FXN, making it on par with most peer products in the space.
FXN’s 12-month trailing dividend yield is 2.43%.
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 99.40% of the portfolio.
When you look at individual holdings, Conocophillips (COP – Free Report) accounts for about 6.24% of the fund’s total assets, followed by Matador Resources Company (MTDR – Free Report) and Ovintiv Inc. (OVV – Free Report) .
The top 10 holdings account for about 40.93% of total assets under management.
Performance and Risk
The ETF has added roughly 2.82% so far this year and is up about 2.80% in the last one year (as of 01/07/2025). In the past 52-week period, it has traded between $15.41 and $19.35.
The ETF has a beta of 1.62 and standard deviation of 28.11% for the trailing three-year period, making it a high risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust Energy AlphaDEX ETF is a reasonable option for investors seeking to outperform the Energy ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard Energy ETF (VDE – Free Report) tracks MSCI US Investable Market Energy 25/50 Index and the Energy Select Sector SPDR ETF (XLE – Free Report) tracks Energy Select Sector Index. Vanguard Energy ETF has $7.67 billion in assets, Energy Select Sector SPDR ETF has $33.78 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.
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