Should First Trust Small Cap Growth AlphaDEX Fund (FYC) Be on Your Investing Radar?
Launched on 04/19/2011, the First Trust Small Cap Growth AlphaDEX Fund (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 $475.71 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.
While growth stocks do boast higher than average sales and earnings growth rates, and they are expected to grow faster than the wider market, investors should note these kinds of stocks have higher valuations. Something to keep in mind is the higher level of volatility that is affiliated with growth stocks. 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.
Costs
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
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
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.
This ETF has heaviest allocation to the Healthcare sector--about 29.30% of the portfolio. Information Technology and Consumer Discretionary round out the top three.
Looking at individual holdings, The Trade Desk, Inc. (class A) (TTD) accounts for about 0.89% of total assets, followed by Twilio Inc. (class A) (TWLO) and Amedisys, Inc. (AMED).
The top 10 holdings account for about 8.16% 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 22.36% so far this year and is up about 29.79% in the last one year (as of 09/25/2018). In the past 52-week period, it has traded between $39.88 and $53.13.
The ETF has a beta of 1.06 and standard deviation of 16.27% 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 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 $8.96 B in assets, iShares Russell 2000 Growth ETF has $11.05 B. VBK has an expense ratio of 0.07% and IWO charges 0.24%.
Bottom-Line
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
The Trade Desk Inc. (TTD) : Free Stock Analysis Report
Twilio Inc. (TWLO) : Free Stock Analysis Report
ISHARS-RS 2K GR (IWO): ETF Research Reports
VIPERS-SC GRWTH (VBK): ETF Research Reports
Amedisys, Inc. (AMED) : Free Stock Analysis Report
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