Understanding the First Trust Energy AlphaDEX ETF
The First Trust Energy AlphaDEX ETF (FXN) is a distinctive exchange-traded fund designed to provide extensive exposure to the energy sector. Established in 2007, this smart beta ETF aims to surpass typical market returns by focusing on stock selection through rigorous screening methods.
What Makes Smart Beta ETFs Unique?
In a market largely dominated by traditional market-cap weighted index funds, smart beta ETFs offer a different approach. Unlike conventional ETFs that track indexes based solely on company size, smart beta strategies utilize various fundamental characteristics—such as valuation and momentum—to enhance returns and mitigate risks.
This approach appeals to investors who are optimistic about achieving superior performance through selective stock picking, which contrasts with the conventional expectation of market efficiency found in traditional ETFs.
Management and Index Tracking
FXN is managed by First Trust Advisors and has successfully attracted over $478 million in assets. The fund aims to replicate the performance of the StrataQuant Energy Index, a modified equal-dollar weighted index that selectively identifies stocks from the Russell 1000 Index. This strategic selection is tailored for investors seeking potential alpha compared to traditional passive strategies.
Expense Ratio Insights
When evaluating ETFs, the expense ratio is an important factor. FXN has an ongoing expense ratio of 0.62%, which is in line with many of its peers in the energy sector. Additionally, this ETF offers a 12-month trailing dividend yield of 2.02%, making it an attractive option for those seeking income.
Sector Allocation and Key Holdings
Transparency is a hallmark of ETFs, and FXN exemplifies this by disclosing its holdings daily, allowing investors to assess diversification and identify potential risks. The ETF primarily focuses on the energy sector, with an impressive 99.10% of its portfolio dedicated to this area.
Among its leading holdings, Valero Energy Corporation (VLO) accounts for approximately 4.23% of total assets, alongside significant contributors like Matador Resources Company (MTDR) and Nov Inc. (NOV). Collectively, these top stocks represent about 39.22% of FXN's assets.
Assessing Performance and Risk
FXN has seen a modest gain of around 1.68% this year; however, it has faced challenges, experiencing a decline of approximately 4.04% over the past year. With trading prices fluctuating between $15.73 and $19.35 in the last 52 weeks, investors should carefully consider their risk tolerance, particularly given the ETF's high beta of 1.61 and a standard deviation of 28.88% over the past three years.
Considering Alternative ETFs
If you're exploring options beyond FXN, there are other ETFs in the energy sector that may be of interest. The Vanguard Energy ETF (VDE) tracks the MSCI US Investable Market Energy 25/50 Index, while the Energy Select Sector SPDR ETF (XLE) follows the Energy Select Sector Index. Both alternatives have significant assets under management, with VDE managing $8.22 billion and XLE overseeing $36.48 billion. Notably, VDE has an expense ratio of 0.10%, while XLE's expenses are at 0.09%.
For investors looking to minimize costs and risks, traditional market-cap-weighted ETFs that aim for strong returns in the energy sector might be a suitable choice.
Frequently Asked Questions
What is the First Trust Energy AlphaDEX ETF?
The First Trust Energy AlphaDEX ETF (FXN) is a smart beta ETF designed to provide exposure to the energy sector by selecting stocks based on specific characteristics.
How does FXN's expense ratio compare to others?
FXN has an expense ratio of 0.62%, which is competitive within the energy ETF space.
What is the focus of FXN?
FXN focuses primarily on the energy sector, allocating 99.10% of its portfolio to energy-related stocks.
What are some of FXN's top holdings?
Its top holdings include Valero Energy Corporation (VLO), Matador Resources Company (MTDR), and Nov Inc. (NOV).
How has FXN performed recently?
This ETF has gained about 1.68% this year, but there has been a decline of approximately 4.04% over the last year.
