Is First Trust Utilities AlphaDEX ETF (FXU) a Strong ETF Right Now?

The First Trust Utilities AlphaDEX ETF (FXU), a smart beta fund with over $1.73 billion in assets under management, has shown strong performance, gaining 19.58% year-to-date and 28.29% over the past year as of August 21, 2025. Despite its medium-risk profile and active AlphaDEX screening methodology, the fund's 0.63% expense ratio is highlighted as one of the highest in the sector, leading the article to suggest it is not ideal for investors seeking outperformance compared to significantly cheaper, larger alternatives like the Vanguard Utilities ETF (VPU) and Utilities Select Sector SPDR ETF (XLU), which have expense ratios of 0.09% and 0.08% respectively.

Analysis

The First Trust Utilities AlphaDEX ETF (FXU) is a smart beta fund that has demonstrated strong recent performance, with a year-to-date gain of 19.58% and a one-year return of 28.29% as of August 21, 2025. It employs the StrataQuant Utilities Index's AlphaDEX methodology to select stocks, resulting in a relatively concentrated portfolio of 41 holdings where the top ten account for 40.08% of its $1.73 billion in assets. However, the fund's primary drawback is its high annual operating expense ratio of 0.63%, which is explicitly flagged as one of the most expensive in its category. This fee structure stands in stark contrast to its larger, market-cap-weighted peers like the Vanguard Utilities ETF (VPU) and the Utilities Select Sector SPDR ETF (XLU), which have significantly lower expense ratios of 0.09% and 0.08%, respectively. While FXU's beta of 0.63 suggests lower volatility relative to the broader market, the analysis ultimately concludes that the fund is not a suitable option for investors seeking to outperform, as the high costs are a significant long-term drag on returns, a view supported by the moderately negative sentiment score assigned to the ETF.

Key Decisions for Investors

• Investors prioritizing long-term, cost-effective exposure to the utilities sector should consider the larger, lower-cost alternatives mentioned, such as VPU and XLU, which offer expense ratios approximately 85% cheaper than FXU.
• Current holders of FXU should re-evaluate their position, weighing the fund's recent strong performance against the significant fee disadvantage that will likely erode net returns over time.
• Tactical investors who believe in the AlphaDEX smart beta strategy must closely monitor whether FXU can consistently generate alpha sufficient to justify its 0.63% expense ratio, as the recent outperformance may not be persistent.