If you're interested in broad exposure to the Small Cap Growth segment of the US equity market, look no further than the First Trust Small Cap Growth AlphaDEX ETF (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 $343.25 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
Small cap companies have market capitalization below $2 billion. They usually have higher potential than large and mid cap companies with stocks but higher risk.
Growth stocks have higher than average sales and earnings growth rates. While these are expected to grow faster than the broader market, they also 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.
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 0.11%.
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 26% of the portfolio. Information Technology and Consumer Discretionary round out the top three.
Looking at individual holdings, Plug Power Inc. (PLUG) accounts for about 1.12% of total assets, followed by Intellia Therapeutics, Inc. (NTLA) and At Home Group Inc. (HOME).
The top 10 holdings account for about 8.08% 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 11.16% so far this year and is up about 45.19% in the last one year (as of 01/28/2021). In the past 52-week period, it has traded between $27.59 and $70.34.
The ETF has a beta of 1.32 and standard deviation of 29.31% for the trailing three-year period, making it a high risk choice in the space. With about 263 holdings, it effectively diversifies company-specific risk.
First Trust Small Cap Growth AlphaDEX ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FYC is a great 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 SmallCap Growth ETF (VBK) track a similar index. While iShares Russell 2000 Growth ETF has $12.44 billion in assets, Vanguard SmallCap Growth ETF has $14.86 billion. IWO has an expense ratio of 0.24% and VBK charges 0.07%.
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are 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 ETF (FYC): ETF Research Reports
Plug Power, Inc. (PLUG) : Free Stock Analysis Report
At Home Group Inc. (HOME) : Free Stock Analysis Report
iShares Russell 2000 Growth ETF (IWO): ETF Research Reports
Intellia Therapeutics, Inc. (NTLA) : Free Stock Analysis Report
Vanguard SmallCap Growth ETF (VBK): ETF Research Reports
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