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

Zacks Equity Research
Mitsubishi UFJ Financial Group (MUFG) reports impressive earnings for the first six months of fiscal 2018 (Sep 30, 2018), driven by low credit costs and strong capital.

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 $459.27 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

Sitting at a market capitalization below $2 billion, small cap companies tend to be high-potential stocks compared to its large and mid cap counterparts, but come with 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. When you consider growth versus value, growth stocks are usually the clear winner in strong bull markets but tend to fall flat in nearly all other environments.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain 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 0.13%.

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 28.80% of the portfolio. Information Technology and Consumer Discretionary round out the top three.

Looking at individual holdings, Medpace Holdings, Inc. (MEDP) accounts for about 0.84% of total assets, followed by Amedisys, Inc. (AMED) and Biotelemetry, Inc. (BEAT).

The top 10 holdings account for about 7.41% 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 gained about 24.24% so far this year and was up about 37.48% in the last one year (as of 08/31/2018). In the past 52-week period, it has traded between $38.55 and $52.79.

The ETF has a beta of 1.02 and standard deviation of 16.41% 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 holds a Zacks ETF Rank of 1 (Strong 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 Small Cap ETFs 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 $9.08 B in assets, iShares Russell 2000 Growth ETF has $11.44 B. VBK has an expense ratio of 0.07% and IWO charges 0.24%.

Bottom-Line

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

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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FT-SC GROWTH AD (FYC): ETF Research Reports
 
ISHARS-RS 2K GR (IWO): ETF Research Reports
 
VIPERS-SC GRWTH (VBK): ETF Research Reports
 
BioTelemetry, Inc. (BEAT) : Free Stock Analysis Report
 
Amedisys, Inc. (AMED) : Free Stock Analysis Report
 
Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report
 
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