If you're interested in broad exposure to the Small Cap Growth segment of the US equity market, look no further than the First Trust Small Cap Growth AlphaDEX Fund (FYC), a passively managed exchange traded fund launched on 04/19/2011.
The fund is sponsored by First Trust Advisors. It has amassed assets over $288.26 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
With more potential comes more risk, and small cap companies, with market capitalization below $2 billion, epitomizes this way of thinking.
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.
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.
Annual operating expenses for this ETF are 0.70%, making it one of the most expensive products in the space.
It has a 12-month trailing dividend yield of 0.04%.
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 20% of the portfolio. Information Technology and Industrials round out the top three.
Looking at individual holdings, Rent-A-Center, Inc. (RCII) accounts for about 0.80% of total assets, followed by Coca-Cola Consolidated Inc (COKE) and Appfolio, Inc. (class A) (APPF).
The top 10 holdings account for about 7.39% 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 return is roughly 12.26% so far this year and is down about -3.66% in the last one year (as of 05/20/2019). In the past 52-week period, it has traded between $37.33 and $53.13.
The ETF has a beta of 1.17 and standard deviation of 17.64% 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.
First Trust Small Cap Growth AlphaDEX Fund holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FYC is an outstanding option for investors seeking exposure to the Style Box - Small Cap Growth segment of the market. There are other additional ETFs in the space that investors could consider as well.
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 $8.75 B in assets, iShares Russell 2000 Growth ETF has $8.97 B. VBK has an expense ratio of 0.07% and IWO charges 0.24%.
Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds 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 Fund (FYC): ETF Research Reports
AppFolio, Inc. (APPF) : Free Stock Analysis Report
Coca-Cola Bottling Co. Consolidated (COKE) : Free Stock Analysis Report
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
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