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Launched on 04/19/2011, the First Trust Small Cap Growth AlphaDEX ETF (FYC) is a smart beta exchange traded fund offering broad exposure to the Style Box - Small Cap Growth category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
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.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $328.59 million, making it one of the average sized ETFs in the Style Box - Small Cap Growth. Before fees and expenses, this particular fund seeks to match the performance of the Nasdaq AlphaDEX Small Cap Growth Index.
The NASDAQ AlphaDEX Small Cap Growth Index is an enhanced which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Growth 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.
Operating expenses on an annual basis are 0.70% for FYC, making it one of the most expensive products in the space.
It's 12-month trailing dividend yield comes in at 0.41%.
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.
For FYC, it has heaviest allocation in the Healthcare sector --about 22.90% of the portfolio --while Industrials and Information Technology round out the top three.
When you look at individual holdings, Adma Biologics, Inc. (ADMA) accounts for about 0.92% of the fund's total assets, followed by Mirum Pharmaceuticals, Inc. (MIRM) and Zeta Global Holdings Corp. (class A) (ZETA).
Its top 10 holdings account for approximately 7.9% of FYC's total assets under management.
Performance and Risk
So far this year, FYC has added roughly 16.21%, and was up about 25.24% in the last one year (as of 09/17/2024). During this past 52-week period, the fund has traded between $51.50 and $73.05.
The fund has a beta of 1.18 and standard deviation of 24.03% for the trailing three-year period, which makes FYC a high risk choice in this particular space. With about 265 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Small Cap Growth AlphaDEX ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 Growth ETF (IWO) tracks Russell 2000 Growth Index and the Vanguard Small-Cap Growth ETF (VBK) tracks CRSP U.S. Small Cap Growth Index. IShares Russell 2000 Growth ETF has $11.60 billion in assets, Vanguard Small-Cap Growth ETF has $17.61 billion. IWO has an expense ratio of 0.24% and VBK 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 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.
Zacks Investment Research
Launched on 04/19/2011, the First Trust Small Cap Growth AlphaDEX ETF (FYC) is a passively managed exchange traded fund designed to provide a broad exposure to the Small Cap Growth segment of the US equity market.
The fund is sponsored by First Trust Advisors. It has amassed assets over $314.36 million, making it one of the average sized ETFs attempting to match the Small Cap Growth segment of the US equity market.
Why Small Cap Growth
With more potential comes more risk, and small cap companies, with market capitalization below $2 billion, epitomizes this way of thinking.
Qualities of growth stocks include faster growth rates compared to the broader market, as well as higher valuations and higher than average sales and earnings growth rates. Additionally, growth stocks have a greater level of risk associated with them. They are likely to outperform value stocks in strong bull markets but over the longer-term, value stocks have delivered better returns than growth stocks in almost all markets.
Costs
Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.
Annual operating expenses for this ETF are 0.70%, making it one of the most expensive products in the space.
It has a 12-month trailing dividend yield of 0.43%.
Sector Exposure and Top Holdings
ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Healthcare sector--about 22.30% of the portfolio. Industrials and Information Technology round out the top three.
Looking at individual holdings, Adma Biologics, Inc. (ADMA) accounts for about 0.92% of total assets, followed by Mirum Pharmaceuticals, Inc. (MIRM) and Zeta Global Holdings Corp. (class A) (ZETA).
The top 10 holdings account for about 7.9% of total assets under management.
Performance and Risk
FYC seeks to match the performance of the Nasdaq AlphaDEX Small Cap Growth Index before fees and expenses. The NASDAQ AlphaDEX Small Cap Growth Index is an enhanced which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 700 Small Cap Growth Index.
The ETF has added roughly 11.05% so far this year and it's up approximately 18.52% in the last one year (as of 09/12/2024). In the past 52-week period, it has traded between $51.50 and $72.61.
The ETF has a beta of 1.18 and standard deviation of 23.97% for the trailing three-year period, making it a high risk choice in the space. With about 265 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Small Cap Growth AlphaDEX ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FYC is a good option for those seeking exposure to the Style Box - Small Cap Growth area of the market. Investors might also want to consider some other ETF options in the space.
The iShares Russell 2000 Growth ETF (IWO) and the Vanguard Small-Cap Growth ETF (VBK) track a similar index. While iShares Russell 2000 Growth ETF has $11.17 billion in assets, Vanguard Small-Cap Growth ETF has $17.01 billion. IWO has an expense ratio of 0.24% and VBK charges 0.07%.
Bottom-Line
While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.
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.
Zacks Investment Research
With its inclusion in the S&P 500 index, Palantir Technologies Inc. is entering a new phase that will likely attract a new wave of investors and long-term capital, according to Bank of America.
On Tuesday, the investment bank reiterated a Buy rating and raised the price target for the data analytics and artificial intelligence firm from $30 to $50, as “S&P 500 inclusion provides a watershed moment” for institutional investors.
“We think that becoming a member of the S&P 500 could be highly beneficial to PLTR’s stock volatility. We think that the inclusion would attract more institutional investors, both passive and active,” wrote Mariana Perez Mora, an analyst at Bank of America.
Strong Financials, Strategic AI Leadership
Palantir has become a key player in artificial intelligence, leveraging its deep ties with both government and commercial sectors. Bank of America's revised $50 price target reflects a new valuation approach, which rolls estimates forward to 2026.
This leads to a projected enterprise value of $116 billion, propelling Palantir closer to the top 100 companies in the S&P 500 (from its current ranking in the 165th range).
Mora explained that the elevated multiple derived from the updated price target is justified by Palantir’s position in national security, its leadership in AI platforms, and its opportunistic partnerships.
She also stressed the company’s strong balance sheet, particularly its $3.9 billion net cash position, as a sign of financial strength that sets Palantir apart from competitors.
A Misunderstood Giant in AI
Bank of America draws attention to a significant market underestimation of Palantir's future potential, likening it to AT&T Inc.‘s early misjudgment of the mobile phone market in the 1980s.
“In 1980, AT&T hired a consultancy company to estimate the market size for cell phones by 2000. The study suggested there would only be 900k users. The actual number of mobile subscriptions in 2000 was more than 100 million,” the report stated.
The analogy underscores how early forecasts often miss the mark on disruptive technologies. Similarly, Palantir's advanced AI capabilities, particularly its Foundry platform, are seen as a vastly underappreciated asset.
Foundry is designed to make data not only accessible but actionable, transforming decision-making processes across various industries.
Bank of America's bullish outlook on Palantir is also supported by its expanding list of partnerships. The company is working closely with major corporations and government agencies, including PwC, Jacobs, Accenture, and Airbus, to broaden its customer base.
“We see Palantir as a beneficiary of rapidly growing demand for Artificial Intelligence (AI)-platforms in both commercial and government end-markets,” the report stated.
Shares of Palantir traded 0.4% lower by 11:15 a.m. ET on Tuesday, after rallying as much as 14.1% a day earlier.
Within the software-related industry, as tracked by the iShares Expanded Tech-Software Sector ETF , Palantir ranks third in year-to-date returns, rising 100%, behind Zeta Global Holdings Corp. , which skyrocketed 187%, and AppLovin Corp. , which surged 116%.
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Photo: World Economic Forum on Flickr
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