Is First Trust Mid Cap Growth AlphaDEX ETF a Strong ETF Right Now?

The First Trust Mid Cap Growth AlphaDEX ETF FNY made its debut on 04/19/2011, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Mid Cap Growth category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

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

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

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

The fund is managed by First Trust Advisors. FNY has been able to amass assets over $346.61 million, making it one of the average sized ETFs in the Style Box - Mid Cap Growth. FNY seeks to match the performance of the Nasdaq AlphaDEX Mid Cap Growth Index before fees and expenses.

The NASDAQ AlphaDEX Mid Cap Growth Index is an enhanced which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 600 Mid Cap Growth Index.

Cost & Other Expenses

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

Annual operating expenses for FNY are 0.70%, which makes it one of the most expensive products in the space.

The fund 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.

Representing 23.80% of the portfolio, the fund has heaviest allocation to the Industrials sector; Consumer Discretionary and Healthcare round out the top three.

Taking into account individual holdings, Coca-Cola Consolidated Inc. COKE accounts for about 0.86% of the fund's total assets, followed by Sprouts Farmers Market, Inc. SFM and The Ensign Group, Inc. ENSG.

The top 10 holdings account for about 8.31% of total assets under management.

Performance and Risk

The ETF has gained about 10.69% and it's up approximately 16.13% so far this year and in the past one year (as of 09/04/2024), respectively. FNY has traded between $55.49 and $77.95 during this last 52-week period.

The fund has a beta of 1.14 and standard deviation of 22.52% for the trailing three-year period, which makes FNY a medium risk choice in this particular space. With about 226 holdings, it effectively diversifies company-specific risk.

Alternatives

 

First Trust Mid Cap Growth AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Mid Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Mid-Cap Growth ETF VOT tracks CRSP U.S. Mid Cap Growth Index and the iShares Russell Mid-Cap Growth ETF IWP tracks Russell MidCap Growth Index. Vanguard Mid-Cap Growth ETF has $13.39 billion in assets, iShares Russell Mid-Cap Growth ETF has $14.07 billion. VOT has an expense ratio of 0.07% and IWP charges 0.23%.

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 - Mid Cap Growth.

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