Understanding the First Trust Utilities Alphadex Fund (FXU)

The First Trust Utilities Alphadex Fund (ticker: FXU) is an ETF designed to invest in companies within the utilities sector. These are businesses that typically provide essential services like electricity, natural gas, and water.

What this ETF is trying to do

This fund focuses on utility companies. By holding a variety of these companies, the ETF aims to provide exposure to the utility industry. According to the most recent data, its Top Holdings include:

• UGI Corp (4.89%)

• National Fuel Gas Co (4.68%)

• The AES Corp (4.43%)

• Eversource Energy (4.27%)

• Consolidated Edison Inc (4.26%)

• Exelon Corp (4.11%)

• Essential Utilities Inc (3.85%)

• PG&E Corp (3.70%)

• Edison International (3.38%)

• OGE Energy Corp (3.38%)

Please note that these are only the largest holdings and can change over time.

What the numbers show

When looking at an ETF, it is important to understand two different types of returns: price return (how much the share price moves) and total return (which includes both price changes and cash distributions).

• One-Year Performance: Over the last year, the share-price return was -1.68%. However, the one-year total return was 0.73%. This means that even though the share price fell, the extra cash from distributions helped the overall return stay positive.

• Year-to-Date (YTD): So far this year, the price return is 1.36%, while the total return is 3.05%.

• Long-Term: The fund has shown strong growth over longer periods. The three-year total return was 73.34%, and the five-year total return was approximately 71.00%.

Income and distribution explanation

FXU provides cash distributions to investors. The current distribution yield is 2.46%. These payments usually happen on a quarterly basis, meaning they are paid out about four times a year. While these distributions provide regular cash, it is important to remember that a high yield does not guarantee your investment will grow in value.

NAV erosion explanation

The supplied data is sufficient to evaluate price erosion, but it does not include enough historical NAV-per-share data to confirm or rule out NAV erosion.

Regarding price-based evidence, the fund has an erosion-risk score of 94, which is labeled as "Stable / sideways" with a "good" severity level. This suggests that the share price has not shown signs of extreme deterioration based on the available measurements.

Pros

• Positive Total Returns: Even when the share price dropped over the last year, the total return remained positive due to distributions.

• Strong History: The fund has shown significant total returns over three and five-year periods.

• Stable Risk Score: The erosion-risk score is considered "good."

Cons

• Price Fluctuations: The share price saw a decline of 1.68% over the last year.

• Sector Focus: Because this fund focuses on utilities, it may behave differently than a fund that invests in many different types of industries.

Beginner takeaway

For new investors, FXU is an example of why you should look at total return instead of just the share price. While the price of one share went down slightly over the last year, the cash distributions helped keep the overall investment value from falling.