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

The First Trust Small Cap Growth AlphaDEX ETF (FYC), a smart beta fund launched in 2011, manages $457.6 million and has delivered a 13.91% return over the past 12 months (as of 07/30/2025). However, its annual operating expense ratio of 0.71% makes it one of the most expensive in the small-cap growth category, and it exhibits a high-risk profile with a beta of 1.16 and a 22.33% standard deviation over three years. While it offers diversified exposure, significantly larger and more cost-effective alternatives like the iShares Russell 2000 Growth ETF (IWO) and Vanguard Small-Cap Growth ETF (VBK), with expense ratios of 0.24% and 0.07% respectively, are available for investors seeking similar market exposure.

Analysis

The First Trust Small Cap Growth AlphaDEX ETF (FYC) is a mid-sized, smart-beta fund with $457.6 million in assets, designed to outperform traditional market-cap-weighted indexes in the small-cap growth segment. While it has delivered a notable 13.91% return over the past 12 months, this performance comes with a significant risk profile, evidenced by a beta of 1.16 and a three-year standard deviation of 22.33%. The fund's primary drawback is its high annual operating expense ratio of 0.71%, which positions it as one of the most expensive options in its category and presents a considerable drag on long-term returns. In contrast, major competitors like the iShares Russell 2000 Growth ETF (IWO) and the Vanguard Small-Cap Growth ETF (VBK) offer exposure to the same market segment with substantially lower expense ratios of 0.24% and 0.07%, respectively, and manage significantly larger asset bases. While FYC provides diversification with 264 holdings, its portfolio is concentrated in the Financials sector at 21.9%, a factor that investors should note.

Key Decisions for Investors

• Investors should carefully weigh the fund's high 0.71% expense ratio against its potential for alpha, as this cost creates a significant performance hurdle relative to much cheaper alternatives like VBK and IWO.
• Given its beta of 1.16 and high standard deviation, this ETF is suitable only for investors with a high risk tolerance who are specifically seeking an active, non-cap-weighted strategy in the small-cap growth space.