Is First Trust Small Cap Growth AlphaDEX ETF (FYC) a Strong ETF Right Now?

Designed to provide broad exposure to the Style Box - Small Cap Growth category of the market, the First Trust Small Cap Growth AlphaDEX ETF (FYC) is a smart beta exchange traded fund launched on 04/19/2011.

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.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

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.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

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. FYC has been able to amass assets over $432.91 million, making it one of the average sized ETFs in the Style Box - Small Cap Growth. Before fees and expenses, FYC seeks to match the performance of the Nasdaq AlphaDEX Small Cap Growth Index.

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.

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 0.71% for this ETF, which makes it one of the most expensive products in the space.

It has a 12-month trailing dividend yield of 0.75%.

Sector Exposure and Top Holdings

ETFs offer 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.

For FYC, it has heaviest allocation in the Financials sector --about 22.20% of the portfolio --while Healthcare and Industrials round out the top three.

Taking into account individual holdings, Sezzle Inc. (SEZL) accounts for about 1% of the fund's total assets, followed by Hertz Global Holdings, Inc. (HTZ) and Adaptive Biotechnologies Corporation (ADPT).

Its top 10 holdings account for approximately 7.93% of FYC's total assets under management.

Performance and Risk

Year-to-date, the First Trust Small Cap Growth AlphaDEX ETF has lost about -3.69% so far, and is up about 12.93% over the last 12 months (as of 05/29/2025). FYC has traded between $61.01 and $84.64 in this past 52-week period.

FYC has a beta of 1.16 and standard deviation of 23.11% for the trailing three-year period, which makes the fund 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 is a reasonable option for investors seeking to outperform the Style Box - Small Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell 2000 Growth ETF (IWO) tracks Russell 2000 Growth Index and the Vanguard Small-Cap Growth ETF (VBK) tracks CRSP U.S. Small Cap Growth Index. IShares Russell 2000 Growth ETF has $11.20 billion in assets, Vanguard Small-Cap Growth ETF has $18.09 billion. IWO has an expense ratio of 0.24% and VBK charges 0.07%.

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 Growth.

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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This article originally published on Zacks Investment Research (zacks.com).

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