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

The First Trust Small Cap Core AlphaDEX ETF (FYX) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Small Cap Blend 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.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking 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.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is sponsored by First Trust Advisors. It has amassed assets over $835.16 million, making it one of the average sized ETFs in the Style Box - Small Cap Blend. FYX, 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

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 cousins, other things remaining the same.

Operating expenses on an annual basis are 0.61% for this ETF, which makes it one of the most expensive products in the space.

The fund has a 12-month trailing dividend yield of 1.10%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 23.90% of the portfolio. Industrials and Consumer Discretionary round out the top three.

When you look at individual holdings, Global Blood Therapeutics, Inc. (GBT) accounts for about 0.46% of the fund's total assets, followed by Atlas Air Worldwide Holdings, Inc. (AAWW) and Comstock Resources, Inc. (CRK).

The top 10 holdings account for about 3.93% of total assets under management.

Performance and Risk

So far this year, FYX has lost about -14.36%, and is down about -15.17% in the last one year (as of 11/24/2022). During this past 52-week period, the fund has traded between $72.71 and $98.63.

The fund has a beta of 1.26 and standard deviation of 33.49% for the trailing three-year period, which makes FYX a medium risk choice in this particular 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 SmallCap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $55.80 billion in assets, iShares Core S&P SmallCap ETF has $68.78 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

Comstock Resources, Inc. (CRK) : Free Stock Analysis Report

Atlas Air Worldwide Holdings (AAWW) : Free Stock Analysis Report

iShares Russell 2000 ETF (IWM): ETF Research Reports

iShares Core S&P SmallCap ETF (IJR): ETF Research Reports

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Zacks Investment Research