Should First Trust Small Cap Growth AlphaDEX ETF Be on Your Investing Radar? – First Trust Small Cap Growth AlphaDEX Fund (NASDAQ:FYC), ADMA Biologics (NASDAQ:ADMA)

Launched on 04/19/2011, the First Trust Small Cap Growth AlphaDEX ETF FYC is a passively managed exchange traded fund designed to provide a 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 $314.36 million, 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

With more potential comes more risk, and small cap companies, with market capitalization below $2 billion, epitomizes this way of thinking.

Qualities of growth stocks include faster growth rates compared to the broader market, as well as higher valuations and higher than average sales and earnings growth rates. Additionally, growth stocks have a greater level of risk associated with them. They are likely to outperform value stocks in strong bull markets but over the longer-term, value stocks have delivered better returns than growth stocks in almost all markets.

Costs

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 counterparts, other things remaining 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 0.43%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund’s holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Healthcare sector–about 22.30% of the portfolio. Industrials and Information Technology round out the top three.

Looking at individual holdings, Adma Biologics, Inc. ADMA accounts for about 0.92% of total assets, followed by Mirum Pharmaceuticals, Inc. MIRM and Zeta Global Holdings Corp. (class A) ZETA.

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 11.05% so far this year and it’s up approximately 18.52% in the last one year (as of 09/12/2024). In the past 52-week period, it has traded between $51.50 and $72.61.

The ETF has a beta of 1.18 and standard deviation of 23.97% for the trailing three-year period, making it 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 carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FYC is a good option for those seeking exposure to the Style Box – Small Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.

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 $11.17 billion in assets, Vanguard Small-Cap Growth ETF has $17.01 billion. IWO has an expense ratio of 0.24% and VBK charges 0.07%.

Bottom-Line

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

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