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

Sweta Killa
Fears of an earnings recession have been there since the start of Q1 earnings. Against this backdrop, let's take a look at which ETFs won this season -- revenue or earnings-weighted?

Looking for broad exposure to the Small Cap Growth segment of the US equity market? You should consider the First Trust Small Cap Growth AlphaDEX Fund (FYC), a passively managed exchange traded fund launched on 04/19/2011.

The fund is sponsored by First Trust Advisors. It has amassed assets over $295.27 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. Further, growth stocks have a higher level of volatility associated with them. Compared to value stocks, growth stocks are a safer bet in a strong bull market, but don't perform as strongly in almost all other financial environments.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

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 0.08%.

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.

This ETF has heaviest allocation to the Healthcare sector--about 24% of the portfolio. Industrials and Information Technology round out the top three.

Looking at individual holdings, Irobot Corporation (IRBT) accounts for about 0.78% of total assets, followed by Sunrun Inc. (RUN) and The Ensign Group, Inc. (ENSG).

The top 10 holdings account for about 7.28% 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 return is roughly 12.36% so far this year and it's up approximately 2.35% in the last one year (as of 03/08/2019). In the past 52-week period, it has traded between $37.33 and $53.13.

The ETF has a beta of 1.20 and standard deviation of 17.56% 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 Vanguard Small-Cap Growth ETF (VBK) and the iShares Russell 2000 Growth ETF (IWO) track a similar index. While Vanguard Small-Cap Growth ETF has $8.31 B in assets, iShares Russell 2000 Growth ETF has $8.98 B. VBK has an expense ratio of 0.07% and IWO charges 0.24%.

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

iShares Russell 2000 Growth ETF (IWO): ETF Research Reports

Vanguard Small-Cap Growth ETF (VBK): ETF Research Reports

iRobot Corporation (IRBT) : Free Stock Analysis Report

The Ensign Group, Inc. (ENSG) : Free Stock Analysis Report

Sunrun Inc. (RUN) : Free Stock Analysis Report

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