Should First Trust Small Cap Growth AlphaDEX ETF (FYC) Be on Your Investing Radar?

The First Trust Small Cap Growth AlphaDEX ETF (FYC), a passively managed fund launched in 2011, provides exposure to the US small-cap growth market with $462.95 million in assets under management. Despite a 16.76% return over the past year, its annual expense ratio of 0.71% is notably high, positioning it as one of the most expensive options in the segment. With a beta of 1.16 and a standard deviation of 22.36%, FYC is a high-risk choice, and its Zacks ETF Rank of 3 (Hold) suggests it is a sufficient option but faces competition from significantly lower-cost alternatives like IWO (0.24%) and VBK (0.07%).

Analysis

The First Trust Small Cap Growth AlphaDEX ETF (FYC) presents a mixed profile for investors seeking exposure to the US small-cap growth segment. While the fund has delivered a strong one-year return of 16.76%, its primary drawback is a high annual expense ratio of 0.71%, positioning it as one of the most expensive options in its category. This cost significantly contrasts with key competitors like the Vanguard Small-Cap Growth ETF (VBK) at 0.07% and the iShares Russell 2000 Growth ETF (IWO) at 0.24%. FYC's risk profile is elevated, as indicated by a beta of 1.16 and a three-year standard deviation of 22.36%, suggesting higher volatility than the broader market. The fund's strategy, which tracks an enhanced AlphaDEX index, results in a diversified portfolio of 264 holdings with a notable overweight in the Financials sector at 22.10%. Despite its average asset size of $462.95 million, the fund's neutral Zacks ETF Rank of 3 (Hold) reflects the trade-off between its solid recent performance and its uncompetitive fee structure.

Key Decisions for Investors

• Investors should carefully weigh the fund's 16.76% one-year performance against its high 0.71% expense ratio, as significantly cheaper alternatives like VBK and IWO exist for accessing the small-cap growth factor.
• Given the fund's beta of 1.16 and its focus on growth stocks, which tend to be more volatile, it is most suitable for investors with a high risk tolerance and a bullish outlook on the market.
• The neutral Zacks ETF Rank of 3 (Hold) suggests that while FYC is a viable option, it does not present a compelling case for new capital, particularly for cost-sensitive, long-term investors who may achieve similar exposure more efficiently elsewhere.