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Should First Trust Small Cap Value AlphaDEX ETF (FYT) Be on Your Investing Radar?

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Zacks Equity Research
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The First Trust Small Cap Value AlphaDEX ETF (FYT) was launched on 04/19/2011, and is a passively managed exchange traded fund designed to offer broad exposure to the Small Cap Value segment of the US equity market.

The fund is sponsored by First Trust Advisors. It has amassed assets over $251.55 million, making it one of the average sized ETFs attempting to match the Small Cap Value segment of the US equity market.

Why Small Cap Value

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.

Value stocks are known for their lower than average price-to-earnings and price-to-book ratios, but investors should also note their lower than average sales and earnings growth rates. Considering long-term performance, value stocks have outperformed growth stocks in almost all markets; however, they are more likely to underperform growth stocks in strong bull markets.

Costs

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 counterparts, other things remaining 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 0.97%.

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 Financials sector--about 34% of the portfolio. Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, Amc Networks Inc. (class A) (AMCX) accounts for about 0.83% of total assets, followed by Cooper Tire & Rubber Company (CTB) and Assured Guaranty Ltd. (AGO).

The top 10 holdings account for about 7.73% of total assets under management.

Performance and Risk

FYT seeks to match the performance of the Nasdaq AlphaDEX Small Cap Value Index before fees and expenses. The NASDAQ AlphaDEX Small Cap Value Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Value Index.

The ETF has added roughly 23.08% so far this year and was up about 130.37% in the last one year (as of 04/01/2021). In the past 52-week period, it has traded between $20.06 and $52.99.

The ETF has a beta of 1.61 and standard deviation of 35.12% for the trailing three-year period, making it a high risk choice in the space. With about 263 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Small Cap Value AlphaDEX ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FYT is a good option for those seeking exposure to the Style Box - Small Cap Value area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Value ETF (IWN) and the Vanguard SmallCap Value ETF (VBR) track a similar index. While iShares Russell 2000 Value ETF has $16.40 billion in assets, Vanguard SmallCap Value ETF has $22.20 billion. IWN has an expense ratio of 0.24% and VBR charges 0.07%.

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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Cooper Tire & Rubber Company (CTB) : Free Stock Analysis Report
 
AMC Networks Inc. (AMCX) : Free Stock Analysis Report
 
Assured Guaranty Ltd. (AGO) : Free Stock Analysis Report
 
iShares Russell 2000 Value ETF (IWN): ETF Research Reports
 
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