Utilizing Utilities With the First Trust Utilities AlphaDEX Fund (FXU)

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

For investors who are seeking some stability in an ever-changing stock market environment, the utility sector may be a smart place to look.

One exchange-traded fund (ETF) that may be of interest is First Trust Utilities AlphaDEX Fund (FXU), which tracks a layered, equal-weighted index of U.S. utilities firms picked from the Russell 100. The fund selects firms based on their value and growth factors and is partial to mid-cap stocks on the extreme ends of the style spectrum.

The majority of its assets are in the United States, and it has a large allocation in telecom companies. There are certain advantages to investing in utilities funds, including the fact that utilities companies are known for their high dividend yields and often can provide a steady stream of income for investors. Though FXU may be on the more expensive end of the ETFs that are currently available, it generally sees quick-paced trading and offers solid volume and narrow spreads for retail investors, while larger investors should find significant underlying liquidity for bulk trades.

FXU has an expense ratio of 0.62% and a dividend yield of 3.94%. It has $178.07 million in assets under management. The year 2020 was rough and unpredictable for the stock market in general, as the pandemic hit all businesses hard. However, as a fund dedicated to utilities companies, FXU saw a lull but spiked in April and again in June. It remained relatively steady through the rest of the year and saw another hopeful spike in December. Since then, it has tapered off slightly and it is currently trading at $28.28.

Chart courtesy of www.stockcharts.com

The majority of the fund’s weight is in utilities with a small portion of its portfolio dedicated to industrials. Its top five holdings include: Edison International (EIX), 4.73%; NRG Energy Inc. (NRG), 4.62%; Exelon Corp. (EX), 4.58%; Evergy Inc. (EVRG), 4.15%; and Pinnacle West Capital Corp. (PNW), 4.14%.

Utility funds may prove to be a solid choice, as many utilities are a necessity rather than a trend. FXU, which was created in 2007, favors aggressive companies that provide high returns and are based in the United States. In sum, First Trust Utilities AlphaDEX Fund (FXU) may be worth looking into for investors who want to generate a solid return while also staying in a sector that is often reliable.

However, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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