Should You Invest in the First Trust Utilities AlphaDEX ETF (FXU)?

The First Trust Utilities AlphaDEX ETF (FXU), a passively managed fund with $1.65 billion in assets, has risen 12.86% YTD and 27.35% over the past year, outperforming the Utilities - Broad segment. However, with an expense ratio of 0.63%, it's considered expensive compared to alternatives like Vanguard Utilities ETF (VPU) and Utilities Select Sector SPDR ETF (XLU), which have lower expense ratios of 0.09% and 0.08% respectively; the ETF carries a Zacks ETF Rank of 4 (Sell).

Analysis

The First Trust Utilities AlphaDEX ETF (FXU), a passively managed fund targeting the Utilities - Broad segment, has demonstrated strong recent performance, adding approximately 12.86% year-to-date and 27.35% over the last year as of May 26, 2025. With $1.65 billion in assets, FXU employs the StrataQuant Utilities Index, which uses the AlphaDEX screening methodology to select stocks from the Russell 1000 Index aiming for positive alpha. Despite this performance and the Utilities - Broad sector's favorable Zacks Industry Rank (3rd, top 19%), FXU carries significant drawbacks. Its annual operating expense ratio of 0.63% positions it as one of the most expensive ETFs in its category, substantially higher than alternatives like the Vanguard Utilities ETF (VPU) at 0.09% and the Utilities Select Sector SPDR ETF (XLU) at 0.08%. Furthermore, FXU holds a Zacks ETF Rank of 4 (Sell), indicating a negative outlook based on factors including expected asset class return, expense ratio, and momentum. The fund offers a 12-month trailing dividend yield of 2.23% and its portfolio of approximately 41 holdings is relatively concentrated, with the top 10 holdings, including NRG Energy, Inc. (4.90%), Sempra, and Evergy, Inc., accounting for about 40.18% of total assets. While its beta of 0.65 and standard deviation of 18% suggest a medium risk profile, the combination of high costs and a sell rating overshadows its recent returns.

Key Decisions for Investors

• Investors should weigh FXU's notable recent performance against its significantly higher expense ratio of 0.63%, which may erode long-term returns compared to more cost-effective peers.
• Given FXU's Zacks ETF Rank of 4 (Sell) and the availability of lower-cost, larger alternatives such as VPU (0.09% expense ratio) and XLU (0.08% expense ratio), investors seeking exposure to the utilities sector should consider these alternatives.