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

Sweta Killa
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The First Trust Small Cap Growth AlphaDEX Fund (FYC) was launched on 04/19/2011, and is a passively managed exchange traded fund designed to offer 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 $300.04 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.

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. Additionally, growth stocks have a greater level of risk associated with them. 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.

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 0.04%.

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 23.70% of the portfolio. Information Technology and Industrials round out the top three.

Looking at individual holdings, Mongodb, Inc. (MDB) accounts for about 1.03% of total assets, followed by Tandem Diabetes Care, Inc. (TNDM) and Irobot Corporation (IRBT).

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 about 15.06% so far this year and is up about 6.45% in the last one year (as of 04/01/2019). In the past 52-week period, it has traded between $37.33 and $53.13.

The ETF has a beta of 1.20 and standard deviation of 17.62% 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 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FYC is an excellent 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 $8.55 B in assets, iShares Russell 2000 Growth ETF has $9.22 B. VBK has an expense ratio of 0.07% and IWO charges 0.24%.

Bottom-Line

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
 
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
 
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
 
iRobot Corporation (IRBT) : Free Stock Analysis Report
 
Tandem Diabetes Care, Inc. (TNDM) : Free Stock Analysis Report
 
MongoDB, Inc. (MDB) : Free Stock Analysis Report
 
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