Should First Trust Small Cap Growth AlphaDEX Fund (FYC) Be On Your Investing Radar?

Launched on 04/19/2011, the First Trust Small Cap Growth AlphaDEX Fund (FYC) is a passively managed exchange traded fund designed to provide a broad exposure to the Small Cap Growth segment of the US equity market.

The fund is sponsored by First Trust Advisors. It has amassed assets over $200.32 M, making it one of the average sized ETFs attempting to match the Small Cap Growth segment of the US equity market.

Why Small Cap Growth

Small cap companies have market capitalization below $2 billion. They usually have higher potential than large and mid cap companies with stocks but higher risk.

Growth stocks have higher than average sales and earnings growth rates. While these are expected to grow faster than the broader market, they also have higher valuations. Something to keep in mind is the higher level of volatility that is affiliated with growth stocks. Compared to value stocks, growth stocks are a safer bet in a strong bull market, but don't perform as strongly in almost all other financial environments.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.70%, making it the most expensive products in the space.

It has a 12-month trailing dividend yield of 0.14%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Healthcare sector--about 27.10% of the portfolio. Information Technology and Consumer Discretionary round out the top three.

Looking at individual holdings, Wildhorse Resource Development Corporation (WRD) accounts for about 0.85% of total assets, followed by Tenet Healthcare Corporation (THC) and Enanta Pharmaceuticals, Inc. (ENTA).

The top 10 holdings account for about 7.45% of total assets under management.

Performance and Risk

FYC seeks to match the performance of the Nasdaq AlphaDEX Small Cap Growth Index before fees and expenses. The NASDAQ AlphaDEX Small Cap Growth Index is an enhanced which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Growth Index.

The ETF has added about 8.38% so far this year and was up about 23.27% in the last one year (as of 05/14/2018). In the past 52-week period, it has traded between $36.31 and $46.05.

The ETF has a beta of 1.04 and standard deviation of 16.56% for the trailing three-year period, making it a high risk choice in the space. With about 262 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Small Cap Growth AlphaDEX Fund carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FYC is a good option for those seeking exposure to the Small Cap ETFs area of the market. Investors might also want to consider some other ETF options in the space.

The Vanguard Small-Cap Growth ETF (VBK) and the iShares Russell 2000 Growth ETF (IWO) track a similar index. While Vanguard Small-Cap Growth ETF has $7.67 B in assets, iShares Russell 2000 Growth ETF has $10.06 B. VBK has an expense ratio of 0.07% and IWO charges 0.24%.

Bottom-Line

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.


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ISHARS-RS 2K GR (IWO): ETF Research Reports
 
VIPERS-SC GRWTH (VBK): ETF Research Reports
 
Enanta Pharmaceuticals, Inc. (ENTA): Free Stock Analysis Report
 
Tenet Healthcare Corporation (THC): Free Stock Analysis Report
 
Wildhorse Resource Development Corporation (WRD): Free Stock Analysis Report
 
FT-SC GROWTH AD (FYC): ETF Research Reports
 
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