Is First Trust Small Cap Value AlphaDEX ETF (FYT) a Strong ETF Right Now?
A smart beta exchange traded fund, the First Trust Small Cap Value AlphaDEX ETF (FYT) debuted on 04/19/2011, and offers broad exposure to the Style Box - Small Cap Value category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FYT has been able to amass assets over $326.14 million, making it one of the average sized ETFs in the Style Box - Small Cap Value. This particular fund, before fees and expenses, seeks to match the performance of the Nasdaq AlphaDEX Small Cap Value Index.
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.
Cost & Other Expenses
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 FYT are 0.70%, which makes it one of the most expensive products in the space.
It's 12-month trailing dividend yield comes in at 0.95%.
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.
FYT's heaviest allocation is in the Financials sector, which is about 30% of the portfolio. Its Industrials and Real Estate round out the top three.
When you look at individual holdings, Supernus Pharmaceuticals, Inc. (SUPN) accounts for about 0.75% of the fund's total assets, followed by Graham Holdings Company (GHC) and Tegna Inc. (TGNA).
The top 10 holdings account for about 6.94% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Small Cap Value AlphaDEX ETF has added roughly 25.54% so far, and was up about 63.93% over the last 12 months (as of 06/18/2021). FYT has traded between $28.49 and $53.68 in this past 52-week period.
The fund has a beta of 1.59 and standard deviation of 35.21% for the trailing three-year period, which makes FYT a high risk choice in this particular space. With about 263 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Small Cap Value AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 Value ETF (IWN) tracks Russell 2000 Value Index and the Vanguard SmallCap Value ETF (VBR) tracks CRSP U.S. Small Cap Value Index. IShares Russell 2000 Value ETF has $17.05 billion in assets, Vanguard SmallCap Value ETF has $24.18 billion. IWN has an expense ratio of 0.24% and VBR charges 0.07%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Value.
Bottom Line
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 Value AlphaDEX ETF (FYT): ETF Research Reports
Supernus Pharmaceuticals, Inc. (SUPN) : Free Stock Analysis Report
Graham Holdings Company (GHC): Free Stock Analysis Report
TEGNA Inc. (TGNA) : Free Stock Analysis Report
Vanguard SmallCap Value ETF (VBR): ETF Research Reports
iShares Russell 2000 Value ETF (IWN): ETF Research Reports
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