Launched on 04/19/2011, the First Trust Small Cap Growth AlphaDEX ETF (FYC) is a smart beta exchange traded fund offering broad exposure to the Style Box - Small Cap Growth category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as 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.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
FYC is managed by First Trust Advisors, and this fund has amassed over $479.93 million, which makes it one of the average sized ETFs in the Style Box - Small Cap Growth. 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.
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.
With one of the most expensive products in the space, this ETF has annual operating expenses of 0.71%.
The fund has a 12-month trailing dividend yield of 0.71%.
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.
For FYC, it has heaviest allocation in the Healthcare sector --about 20.50% of the portfolio --while Industrials and Financials round out the top three.
Taking into account individual holdings, Rocket Lab Usa, Inc. (RKLB) accounts for about 1.60% of the fund's total assets, followed by Brinker International, Inc. (EAT) and Interdigital, Inc. (IDCC).
FYC's top 10 holdings account for about 9.03% of its total assets under management.
Performance and Risk
The ETF has added about 2.03% so far this year and is up roughly 34.33% in the last one year (as of 01/20/2025). In the past 52-week period, it has traded between $60.53 and $84.64.
FYC has a beta of 1.21 and standard deviation of 23.68% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 265 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Small Cap Growth AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 Growth ETF (IWO) tracks Russell 2000 Growth Index and the Vanguard Small-Cap Growth ETF (VBK) tracks CRSP U.S. Small Cap Growth Index. IShares Russell 2000 Growth ETF has $12.92 billion in assets, Vanguard Small-Cap Growth ETF has $20.22 billion. IWO has an expense ratio of 0.24% and VBK 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 Growth.
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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Get it free >>First Trust Small Cap Growth AlphaDEX ETF (FYC): ETF Research Reports
Brinker International, Inc. (EAT) : Free Stock Analysis Report
InterDigital, Inc. (IDCC) : Free Stock Analysis Report
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports
Rocket Lab USA, Inc. (RKLB) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
