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 $403.82 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
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. Additionally, growth stocks have a greater level of risk associated with them. 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.
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 0.15%.
Sector Exposure and Top Holdings
ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Healthcare sector--about 27.80% of the portfolio. Industrials and Information Technology round out the top three.
Looking at individual holdings, Crocs, Inc. (CROX) accounts for about 0.95% of total assets, followed by The Ensign Group, Inc. (ENSG) and Hms Holdings Corp. (HMSY).
The top 10 holdings account for about 7.81% 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 roughly 7.40% so far this year and was up about 7.78% in the last one year (as of 11/30/2018). In the past 52-week period, it has traded between $40.71 and $53.13.
The ETF has a beta of 1.16 and standard deviation of 17.06% 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 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FYC is a great 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 $8.10 B in assets, iShares Russell 2000 Growth ETF has $9.46 B. VBK has an expense ratio of 0.07% and IWO charges 0.24%.
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are 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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FT-SC GROWTH AD (FYC): ETF Research Reports
HMS Holdings Corp (HMSY) : Free Stock Analysis Report
ISHARS-RS 2K GR (IWO): ETF Research Reports
VIPERS-SC GRWTH (VBK): ETF Research Reports
The Ensign Group, Inc. (ENSG) : Free Stock Analysis Report
Crocs, Inc. (CROX) : Free Stock Analysis Report
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