Is First Trust Energy AlphaDEX ETF (FXN) a Strong ETF Right Now?

The First Trust Energy AlphaDEX ETF (FXN), a $278.76 million smart beta fund targeting the energy sector, has significantly underperformed, recording losses of -3.71% year-to-date and -14.12% over the past 12 months, while being identified as a high-risk option with a 0.61% expense ratio. The article concludes that FXN is not suitable for investors seeking outperformance in the energy ETF segment, instead recommending larger, lower-cost market-cap weighted alternatives like the Vanguard Energy ETF (VDE) and Energy Select Sector SPDR ETF (XLE), which boast significantly lower expense ratios of 0.08-0.09%.

Analysis

The First Trust Energy AlphaDEX ETF (FXN) is a smart beta fund that has failed to deliver on its objective of generating positive alpha, exhibiting significant underperformance with a 3.71% year-to-date loss and a 14.12% decline over the last 12 months. Its investment thesis is further weakened by a high-risk profile, evidenced by a three-year standard deviation of 28.29%, and a relatively concentrated portfolio of 41 holdings. The fund's expense ratio of 0.61% is a considerable drag on potential returns, particularly when contrasted with the substantially lower fees of its larger, market-capitalization-weighted peers like the Vanguard Energy ETF (VDE) at 0.09% and the Energy Select Sector SPDR ETF (XLE) at 0.08%. The combination of poor performance, high risk, and elevated costs makes FXN an unattractive vehicle for energy sector exposure, as its proprietary AlphaDEX screening methodology has not proven effective in the current market environment.

Key Decisions for Investors

• Investors should consider avoiding or divesting from FXN due to its consistent underperformance, high costs, and elevated risk profile.
• For exposure to the energy sector, it is more prudent to evaluate lower-cost, more liquid, and market-cap-weighted alternatives such as VDE and XLE, which offer more competitive expense structures.