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Is First Trust Small Cap Value AlphaDEX ETF (FYT) a Strong ETF Right Now?

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The First Trust Small Cap Value AlphaDEX ETF (FYT) made its debut on 04/19/2011, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Small Cap Value category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Because the fund has amassed over $265.67 million, this makes it one of the average sized ETFs in the Style Box - Small Cap Value. FYT is managed by First Trust Advisors. This particular fund, before fees and expenses, seeks to match the performance of the Nasdaq AlphaDEX Small Cap Value Index.

The NASDAQ AlphaDEX Small Cap Value Index is an enhanced index which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Value Index.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.71%, making it one of the most expensive products in the space.

FYT's 12-month trailing dividend yield is 1.17%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 30.60% of the portfolio. Industrials and Consumer Discretionary round out the top three.

When you look at individual holdings, Cornerstone Building Brands Inc. (CNR) accounts for about 0.84% of the fund's total assets, followed by Mr. Cooper Group Inc. (COOP) and Tegna Inc. (TGNA).

FYT's top 10 holdings account for about 7.56% of its total assets under management.

Performance and Risk

So far this year, FYT has lost about -4.58%, and is up roughly 2.74% in the last one year (as of 04/01/2022). During this past 52-week period, the fund has traded between $47.75 and $54.42.

The fund has a beta of 1.44 and standard deviation of 35.44% for the trailing three-year period, which makes FYT a high risk choice in this particular space. With about 263 holdings, it effectively diversifies company-specific risk.

Alternatives

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

IShares Russell 2000 Value ETF (IWN) tracks Russell 2000 Value Index and the Vanguard SmallCap Value ETF (VBR) tracks CRSP U.S. Small Cap Value Index. IShares Russell 2000 Value ETF has $14.72 billion in assets, Vanguard SmallCap Value ETF has $27.12 billion. IWN has an expense ratio of 0.24% and VBR charges 0.07%.

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 - Small Cap Value.

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 Small Cap Value AlphaDEX ETF (FYT): ETF Research Reports
 
TEGNA Inc. (TGNA) : Free Stock Analysis Report
 
Vanguard SmallCap Value ETF (VBR): ETF Research Reports
 
iShares Russell 2000 Value ETF (IWN): ETF Research Reports
 
MR. COOPER GROUP INC (COOP) : Free Stock Analysis Report
 
Cornerstone Building Brands, Inc. (CNR) : Free Stock Analysis Report
 
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Zacks Investment Research

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