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

The First Trust Small Cap Core AlphaDEX ETF (FYX), a smart beta fund with $821.34 million in assets under management, provides exposure to small-cap blend equities through its proprietary AlphaDEX stock selection methodology. While aiming for enhanced returns, FYX carries a relatively high expense ratio of 0.61% and has delivered mixed performance, down 3.66% year-to-date but up 8.89% over the past year. This positions it as a medium-risk option, notably more expensive than significantly larger market-cap weighted alternatives like the iShares Russell 2000 ETF (IWM) and iShares Core S&P Small-Cap ETF (IJR), which feature expense ratios as low as 0.06%.

Analysis

The First Trust Small Cap Core AlphaDEX ETF (FYX) is a mid-sized, smart beta fund with $821.34 million in assets, designed to outperform the small-cap blend category using a proprietary AlphaDEX stock selection methodology. Despite its objective, the fund's performance is mixed, showing a year-to-date loss of 3.66% against a one-year gain of 8.89%. A significant point of concern is its high annual expense ratio of 0.61%, which positions it as a costly option within its peer group. This fee is substantially higher than those of much larger, passive alternatives like the iShares Russell 2000 ETF (IWM) at 0.19% and the iShares Core S&P Small-Cap ETF (IJR) at 0.06%. The fund's risk profile is characterized as medium, with a beta of 1.12 indicating higher volatility than the broader market. While FYX offers high diversification with 526 holdings and a concentration in Financials (24.7%), its value proposition is challenged by its fee structure and inconsistent performance relative to cheaper, market-cap weighted alternatives.

Key Decisions for Investors

• Investors should critically evaluate if the potential for outperformance from FYX's proprietary AlphaDEX strategy justifies its high 0.61% expense ratio, especially when low-cost passive alternatives like IJR and IWM offer similar market exposure for a fraction of the cost.
• Given the fund's mixed performance, including a -3.66% year-to-date return, and a higher-than-market beta of 1.12, prospective buyers should consider whether this risk-return profile aligns with their objectives, as the smart beta approach has not consistently shielded from downside.
• Current holders might consider re-evaluating their position in FYX, comparing its fee-adjusted returns against passive small-cap ETFs, while new investors could view the significantly cheaper and larger alternatives as more prudent entry points into the small-cap space.