First Trust Utilities AlphaDEX Fund (FXU) seeks to track the StrataQuant Utilities Index, which selects and weights U.S. utility companies based on growth and value factors rather than market capitalization. This sector-focused equity ETF provides exposure to electric, gas, and water utility companies using a quantitative screening methodology.
How It Works
FXU employs an enhanced indexing approach that ranks utility stocks on growth factors (sales growth, earnings growth) and value factors (book value to price, cash flow to price). The top-scoring companies receive higher allocations through equal weighting within quintiles, with annual reconstitution and quarterly rebalancing. This AlphaDEX methodology aims to outperform traditional market-cap weighted utility indices by overweighting fundamentally attractive utility stocks while maintaining sector diversification.
Key Features
- Uses proprietary AlphaDEX methodology to potentially outperform cap-weighted utility indices through factor-based stock selection and weighting
- Focuses exclusively on U.S. utilities sector, providing pure-play exposure to defensive dividend-paying infrastructure companies
- Annual reconstitution allows for systematic rotation toward utilities with improving fundamental metrics and valuations
Risks
- This ETF can lose value if utility stocks underperform due to rising interest rates, which increase borrowing costs for capital-intensive utility companies
- Sector concentration risk means the fund will decline significantly during broad utilities sector selloffs, lacking diversification across other industries
- Factor-based weighting may underperform during periods when growth and value metrics fail to predict utility stock performance
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for conservative investors seeking defensive dividend income with 3+ year time horizons. Low-to-medium risk tolerance required given utility sector volatility during interest rate cycles. Appropriate for investors wanting sector-specific exposure or those building dividend-focused portfolios in retirement accounts.