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Should First Trust Small Cap Growth AlphaDEX ETF (FYC) Be on Your Investing Radar?

Launched on 04/19/2011, the First Trust Small Cap Growth AlphaDEX ETF (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 $201.22 million, 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

There's a lot of potential to investing in small cap companies, but with market capitalization below $2 billion, that high potential comes with even 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. They are likely to outperform value stocks in strong bull markets but over the longer-term, value stocks have delivered better returns than growth stocks in almost all markets.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

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

It has a 12-month trailing dividend yield of 0.77%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. 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 20.50% of the portfolio. Industrials and Information Technology round out the top three.

Looking at individual holdings, Global Blood Therapeutics, Inc. (GBT) accounts for about 0.90% of total assets, followed by Array Technologies, Inc. (ARRY) and Celsius Holdings, Inc. (CELH).

The top 10 holdings account for about 7.64% 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 lost about -23.49% so far this year and is down about -19.99% in the last one year (as of 10/06/2022). In the past 52-week period, it has traded between $52.17 and $80.47.

The ETF has a beta of 1.18 and standard deviation of 32.71% for the trailing three-year period, making it a high risk choice in the space. With about 263 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Small Cap Growth AlphaDEX ETF 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 reasonable option for those seeking exposure to the Style Box - Small Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Growth ETF (IWO) and the Vanguard SmallCap Growth ETF (VBK) track a similar index. While iShares Russell 2000 Growth ETF has $9.13 billion in assets, Vanguard SmallCap Growth ETF has $12.12 billion. IWO has an expense ratio of 0.23% and VBK charges 0.07%.

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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First Trust Small Cap Growth AlphaDEX ETF (FYC): ETF Research Reports
 
Array Technologies, Inc. (ARRY) : Free Stock Analysis Report
 
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
 
Global Blood Therapeutics, Inc. (GBT) : Free Stock Analysis Report
 
Vanguard SmallCap Growth ETF (VBK): ETF Research Reports
 
Celsius Holdings Inc. (CELH) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

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