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

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 $245.67 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

Sitting at a market capitalization below $2 billion, small cap companies tend to be high-potential stocks compared to its large and mid cap counterparts, but come with higher risk.

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. Something to keep in mind is the higher level of volatility that is affiliated with growth stocks. When you consider growth versus value, growth stocks are usually the clear winner in strong bull markets but tend to fall flat in nearly all other environments.

Costs

When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

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 0.12%.

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 to the Healthcare sector--about 21.80% of the portfolio. Industrials and Information Technology round out the top three.

Looking at individual holdings, Shake Shack Inc. (class A) (SHAK) accounts for about 0.95% of total assets, followed by Lattice Semiconductor Corporation (LSCC) and Medpace Holdings, Inc. (MEDP).

The top 10 holdings account for about 7.9% of total assets under management.

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 roughly 9.45% so far this year and is down about -16.05% in the last one year (as of 10/01/2019). In the past 52-week period, it has traded between $37.33 and $51.06.

The ETF has a beta of 1.13 and standard deviation of 17.77% 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 1 (Strong 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 iShares Russell 2000 Growth ETF (IWO) and the Vanguard Small-Cap Growth ETF (VBK) track a similar index. While iShares Russell 2000 Growth ETF has $8.76 B in assets, Vanguard Small-Cap Growth ETF has $8.85 B. IWO has an expense ratio of 0.24% and VBK charges 0.07%.

Bottom-Line

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they 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
 
Lattice Semiconductor Corporation (LSCC) : Free Stock Analysis Report
 
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
 
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
 
Shake Shack, Inc. (SHAK) : Free Stock Analysis Report
 
Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report
 
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