Should First Trust Small Cap Core AlphaDEX ETF (FYX) Be on Your Investing Radar?

The First Trust Small Cap Core AlphaDEX ETF (FYX), a $841.68 million fund launched in 2007, provides diversified exposure to the US Small Cap Blend market with a medium risk profile. Despite its objective to track the Nasdaq AlphaDEX Small Cap Core Index and a 4.83% return over the past year, its 0.61% expense ratio is notably higher than significantly larger and more liquid alternatives such as the Vanguard Small-Cap ETF (VB) and iShares Core S&P Small-Cap ETF (IJR), which charge 0.05% and 0.06% respectively. FYX currently holds a Zacks ETF Rank of 3 (Hold).

Analysis

The First Trust Small Cap Core AlphaDEX ETF (FYX) is a passively managed fund offering exposure to the U.S. small-cap blend segment through a proprietary, enhanced indexing strategy based on the Nasdaq AlphaDEX Small Cap Core Index. With $841.68 million in assets, it is well-diversified across 525 holdings, with the top ten constituents comprising only 6.29% of the portfolio and a significant sector concentration in Financials at 23.90%. The fund's performance has been modest, with a 4.83% gain over the last year but a slight decline of 0.04% year-to-date. Its risk profile is elevated relative to the broad market, evidenced by a beta of 1.12. The most significant challenge for FYX is its high annual operating expense ratio of 0.61%, which positions it as a costly option in its category. This is particularly stark when compared to substantially larger and more liquid peers like the Vanguard Small-Cap ETF (VB) and the iShares Core S&P Small-Cap ETF (IJR), which charge only 0.05% and 0.06%, respectively. The fund's neutral Zacks ETF Rank of 3 (Hold) reflects this trade-off between its unique factor-based approach and its considerable cost drag.

Key Decisions for Investors

• Investors seeking core small-cap blend exposure should carefully weigh the high 0.61% expense ratio of FYX against much cheaper and larger alternatives like VB and IJR, as this cost difference creates a significant performance hurdle.
• Current holders of FYX should evaluate whether the fund's AlphaDEX methodology is delivering sufficient alpha to justify its premium expense ratio relative to standard market-cap weighted small-cap ETFs.
• Given the Zacks 'Hold' rating and mixed performance signals, new capital might be better deployed in lower-cost alternatives unless an investor has strong conviction in the proprietary AlphaDEX stock selection process outperforming over the long term, net of fees.