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

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Designed to provide broad exposure to the Style Box – Small Cap Blend category of the market, the First Trust Small Cap Core AlphaDEX ETF (FYX) is a smart beta exchange traded fund launched on 05/08/2007.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: 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.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by First Trust Advisors. FYX has been able to amass assets over $1.03 billion, making it one of the average sized ETFs in the Style Box – Small Cap Blend. This particular fund seeks to match the performance of the Nasdaq AlphaDEX Small Cap Core Index before fees and expenses.

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 FYX, making it one of the most expensive products in the space.

It’s 12-month trailing dividend yield comes in at 0.67%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it’s still important for investors to research a fund’s holdings.

Representing 23.10% of the portfolio, the fund has heaviest allocation to the Financials sector; Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, Dillard’s, Inc. (class A) (DDS) accounts for about 0.39% of total assets, followed by Calix, Inc. (CALX) and Genworth Financial, Inc. (GNW).

FYX’s top 10 holdings account for about 3.57% of its total assets under management.

Performance and Risk

The ETF has added about 32.74% so far this year and is up about 50.61% in the last one year (as of 11/12/2021). In the past 52-week period, it has traded between $67.71 and $101.

The ETF has a beta of 1.35 and standard deviation of 31.80% for the trailing three-year period, making it a medium risk choice in the 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 $75.09 billion in assets, iShares Core S&P SmallCap ETF has $76.41 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.

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First Trust Small Cap Core AlphaDEX ETF (FYX): ETF Research Reports
 
Dillard’s, Inc. (DDS): Free Stock Analysis Report
 
Genworth Financial, Inc. (GNW): Free Stock Analysis Report
 
Calix, Inc (CALX): 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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