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

The First Trust Small Cap Core AlphaDEX ETF FYX was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Small Cap Blend category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

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

FYX is managed by First Trust Advisors, and this fund has amassed over $836.92 million, which makes 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

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.

Operating expenses on an annual basis are 0.60% for this ETF, which makes it one of the more expensive products in the space.

It has a 12-month trailing dividend yield of 1.14%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

FYX's heaviest allocation is in the Financials sector, which is about 22.30% of the portfolio. Its Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, Oscar Health, Inc. (class A) OSCR accounts for about 0.49% of total assets, followed by Modine Manufacturing Company MOD and Sphere Entertainment Co. SPHR.

The top 10 holdings account for about 4.32% of total assets under management.

Performance and Risk

The ETF has lost about -2.04% so far this year and is up about 10.73% in the last one year (as of 06/18/2024). In the past 52-week period, it has traded between $74.82 and $94.11.

The ETF has a beta of 1.25 and standard deviation of 22.19% 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 Small-Cap ETF IJR tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $59.91 billion in assets, iShares Core S&P Small-Cap ETF has $76.54 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.

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