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Is First Trust Small Cap Growth AlphaDEX Fund (FYC) a Strong ETF Right Now?

Zacks Equity Research

The First Trust Small Cap Growth AlphaDEX Fund (FYC) made its debut on 04/19/2011, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Small Cap Growth category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

FYC is managed by First Trust Advisors, and this fund has amassed over $293.11 M, which makes it one of the average sized ETFs in the Style Box - Small Cap Growth. This particular fund, before fees and expenses, seeks to match the performance of the Nasdaq AlphaDEX Small Cap Growth Index.

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.

Cost & Other Expenses

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 cousins, other things remaining the same.

Annual operating expenses for FYC are 0.70%, which makes it one of the most expensive products in the space.

It's 12-month trailing dividend yield comes in at 0.08%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

FYC's heaviest allocation is in the Healthcare sector, which is about 24.60% of the portfolio. Its Industrials and Information Technology round out the top three.

Taking into account individual holdings, Alteryx, Inc. (class A) (AYX) accounts for about 0.73% of the fund's total assets, followed by Tpi Composites, Inc. (TPIC) and Freshpet, Inc. (FRPT).

FYC's top 10 holdings account for about 6.92% of its total assets under management.

Performance and Risk

The ETF has added roughly 11.54% so far this year and is up about 8.10% in the last one year (as of 02/06/2019). In the past 52-week period, it has traded between $37.33 and $53.13.

The ETF has a beta of 1.18 and standard deviation of 17.68% 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 is an excellent option for investors seeking to outperform the Style Box - Small Cap Growth segment of the market. There are other ETFs in the space which investors could consider as well.

Vanguard Small-Cap Growth ETF (VBK) tracks CRSP U.S. Small Cap Growth Index and the iShares Russell 2000 Growth ETF (IWO) tracks Russell 2000 Growth Index. Vanguard Small-Cap Growth ETF has $8.19 B in assets, iShares Russell 2000 Growth ETF has $8.95 B. VBK has an expense ratio of 0.07% and IWO charges 0.24%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Growth.

Bottom Line

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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iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
TPI Composites, Inc. (TPIC) : Free Stock Analysis Report
Alteryx, Inc. (AYX) : Free Stock Analysis Report
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