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?
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.
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.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
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.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
FXN is managed by First Trust Advisors, and this fund has amassed over $280.18 million, which makes it one of the average sized ETFs in the Energy ETFs. FXN, 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
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Annual operating expenses for FXN are 0.61%, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 2.77%.
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.
Representing 96.2% of the portfolio, the fund has heaviest allocation to the Energy sector.
Looking at individual holdings, Civitas Resources, Inc. (CIVI) accounts for about 5.19% of total assets, followed by Devon Energy Corporation (DVN) and Chord Energy Corporation (CHRD).
The top 10 holdings account for about 44.39% of total assets under management.
Performance and Risk
The ETF has gained about 1.56% and is up about 3.71% so far this year and in the past one year (as of 09/17/2025), respectively. FXN has traded between $12.88 and $18.08 during this last 52-week period.
The ETF has a beta of 0.94 and standard deviation of 27.45% 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 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 $7.33 billion in assets, Energy Select Sector SPDR ETF has $27.16 billion. VDE has an expense ratio of 0.09% and XLE changes 0.08%.
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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First Trust Energy AlphaDEX ETF (FXN): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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