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Is First Trust Small Cap Core AlphaDEX ETF (FYX) a Strong ETF Right Now?

Designed to provide broad exposure to the Style Box - Small Cap Blend category of the market, the First Trust Small Cap Core AlphaDEX ETF (FYX) is a smart beta exchange traded fund launched on 05/08/2007.

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.

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However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

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, and has been able to amass over $727.37 million, which makes it one of the average sized ETFs in the Style Box - Small Cap Blend. This particular fund, before fees and expenses, seeks to match the performance of the Nasdaq AlphaDEX Small Cap Core Index.

The NASDAQ AlphaDEX Small Cap Core Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap 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 FYX are 0.61%, which makes it one of the most expensive products in the space.

FYX's 12-month trailing dividend yield is 1.11%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

For FYX, it has heaviest allocation in the Industrials sector --about 18.10% of the portfolio --while Financials and Consumer Discretionary round out the top three.

When you look at individual holdings, Axcelis Technologies, Inc. (ACLS) accounts for about 0.52% of the fund's total assets, followed by Hims & Hers Health, Inc. (HIMS) and Wolverine World Wide, Inc. (WWW).

Its top 10 holdings account for approximately 4.48% of FYX's total assets under management.

Performance and Risk

The ETF has lost about -1.56% and is down about -9.37% so far this year and in the past one year (as of 05/31/2023), respectively. FYX has traded between $72.71 and $90.02 during this last 52-week period.

The ETF has a beta of 1.27 and standard deviation of 25.34% for the trailing three-year period, making it a medium risk choice in the space. With about 526 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Small Cap Core AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell 2000 ETF (IWM) tracks Russell 2000 Index and the iShares Core S&P Small-Cap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $50.17 billion in assets, iShares Core S&P Small-Cap ETF has $64.16 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.

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 Blend.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

First Trust Small Cap Core AlphaDEX ETF (FYX): ETF Research Reports

Wolverine World Wide, Inc. (WWW) : Free Stock Analysis Report

Axcelis Technologies, Inc. (ACLS) : Free Stock Analysis Report

iShares Russell 2000 ETF (IWM): ETF Research Reports

iShares Core S&P Small-Cap ETF (IJR): ETF Research Reports

Hims & Hers Health, Inc. (HIMS) : Free Stock Analysis Report

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Zacks Investment Research