Is First Trust Multi Cap Growth AlphaDEX Fund (FAD) a Strong ETF Right Now?

Designed to provide broad exposure to the Style Box - All Cap Growth category of the market, the First Trust Multi Cap Growth AlphaDEX Fund (FAD) is a smart beta exchange traded fund launched on 05/08/2007.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by First Trust Advisors, FAD has amassed assets over $227.65 M, making it one of the larger ETFs in the Style Box - All Cap Growth. FAD, before fees and expenses, seeks to match the performance of the Nasdaq AlphaDEX Multi Cap Growth Index.

The NASDAQ AlphaDEX Multi Cap Growth Index is an enhanced which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 500 Large Cap Index, NASDAQ US 600 Mid Cap Index and NASDAQ US 700 Small Cap Index.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Operating expenses on an annual basis are 0.66% for this ETF, which makes it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 0.47%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 19.50% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Industrials and Healthcare round out the top three.

When you look at individual holdings, Tesla, Inc. (TSLA) accounts for about 0.60% of the fund's total assets, followed by Teradyne, Inc. (TER) and Charter Communications, Inc. (CHTR).

FAD's top 10 holdings account for about 4.99% of its total assets under management.

Performance and Risk

Year-to-date, the First Trust Multi Cap Growth AlphaDEX Fund has added roughly 1.65% so far, and is up about 22.83% over the last 12 months (as of 01/10/2020). FAD has traded between $64.19 and $78.54 in this past 52-week period.

FAD has a beta of 1.03 and standard deviation of 15.47% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 675 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Multi Cap Growth AlphaDEX Fund is a reasonable option for investors seeking to outperform the Style Box - All Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

First Trust US Equity Opportunities ETF (FPX) tracks IPOX-100 U.S. Index and the iShares Core S&P U.S. Growth ETF (IUSG) tracks S&P 900 Growth Index. First Trust US Equity Opportunities ETF has $1.36 B in assets, iShares Core S&P U.S. Growth ETF has $8.04 B. FPX has an expense ratio of 0.59% and IUSG charges 0.04%.

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 - All 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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First Trust Multi Cap Growth AlphaDEX Fund (FAD): ETF Research Reports
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
Charter Communications, Inc. (CHTR) : Free Stock Analysis Report
 
iShares Core S&P U.S. Growth ETF (IUSG): ETF Research Reports
 
First Trust US Equity Opportunities ETF (FPX): ETF Research Reports
 
Teradyne, Inc. (TER) : Free Stock Analysis Report
 
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