Smart Beta ETFs
The $1.3 billion First Trust Utilities AlphaDEX Fund (FXU) is the largest of the smart beta ETFs. Its underlying index relies on a quantitative factor-based model that selects utilities companies from the Russell 1000 Index. FXU has 34 components, and only three of its top 10 components are included in XLU’s top 10 holdings. It’s the most expensive fund in the group, at 0.63%.
The Invesco S&P 500 Equal Weight Utilities ETF (RYU) is basically just a differently weighted version of XLU. Four of the holdings in RYU’s top 10 are included in XLU’s top 10. With an expense ratio of 0.40%, it costs less than IDU. RYU has more than $400 million in assets.
Finally, the $156 million Invesco DWA Utilities Momentum ETF (PUI) is also on upper end of the price range, at 0.60%. The fund weights its stocks based on price momentum. It has the widest spread in the group, at 0.05%, and the lowest average daily volume, at roughly $2 million traded.
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XLU not only has the best trading stats in the group, it also pulled in more than any of the other funds over the 12-month period ended Jan. 31, gaining more than $970 million. The fund exhibits the best performance of all seven utilities ETFs in the comparison over the three-month, year-to-date, one-year and three-year periods, though it lags in the five- and 10-year periods.
FUTY, the cheapest fund in the group, exhibits solid performance, landing in the middle of the pack over all the major time periods.
None of the other funds really stands out in terms of performance, with most ETFs clustered in the same general range. However, FXU is a notable exception, coming in last for all the major time periods covered.
Making A Decision
Most of these funds offer very similar features, and making a decision comes down to how much you care about the different nuances. XLU, for example, has the deepest liquidity, by far. Its price is at the lower end of the range, and it’s eminently suitable for traders.
At the same time, FUTY is the cheapest fund in the group and does quite well over the longer time periods, making it very suitable for the longer-term investor.
FXU, as the most expensive fund in the entire category of seven ETFs, and with the worst performance, is probably an investment vehicle most would steer clear of. Investors looking for a smart beta twist on the utilities space would be better going with a lower-cost and better-performing fund like RYU.