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Should You Invest in the First Trust Energy AlphaDEX ETF (FXN)?

Looking for broad exposure to the Energy - Broad segment of the equity market? You should consider the First Trust Energy AlphaDEX ETF (FXN), a passively managed exchange traded fund launched on 05/08/2007.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

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 1, placing it in top 6%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.12 billion, 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 0.64%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.72%.

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 94.40% of the portfolio.

Looking at individual holdings, Conocophillips (COP) accounts for about 5.17% of total assets, followed by Pioneer Natural Resources Company (PXD) and Diamondback Energy, Inc. (FANG).

The top 10 holdings account for about 45.48% of total assets under management.

Performance and Risk

So far this year, FXN has gained about 18.43%, and it's up approximately 34.29% in the last one year (as of 03/16/2022). During this past 52-week period, the fund has traded between $9.56 and $15.50.

The ETF has a beta of 2.05 and standard deviation of 47.72% for the trailing three-year period, making it a high risk choice in the space. With about 37 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 reasonable 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 $7.88 billion in assets, Energy Select Sector SPDR ETF has $35.84 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.


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First Trust Energy AlphaDEX ETF (FXN): ETF Research Reports
 
ConocoPhillips (COP): Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
 
Energy Select Sector SPDR ETF (XLE): ETF Research Reports
 
Diamondback Energy, Inc. (FANG): Free Stock Analysis Report
 
Vanguard Energy ETF (VDE): ETF Research Reports
 
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