Designed to provide broad exposure to the Style Box – Small Cap Value category of the market, the First Trust Small Cap Value AlphaDEX ETF (FYT) is a smart beta exchange traded fund launched on 04/19/2011.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader 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.
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.
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 $227.21 million, making it one of the average sized ETFs in the Style Box – Small Cap Value. Before fees and expenses, FYT 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
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 cousins, other things remaining the same.
Operating expenses on an annual basis are 0.71% for this ETF, which makes it one of the most expensive products in the space.
FYT’s 12-month trailing dividend yield is 1.25%.
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.
FYT’s heaviest allocation is in the Financials sector, which is about 29.70% of the portfolio. Its Industrials and Consumer Discretionary round out the top three.
Looking at individual holdings, Encore Wire Corporation (WIRE) accounts for about 0.73% of total assets, followed by Genworth Financial, Inc. (GNW) and Tri Pointe Homes, Inc. (TPH).
FYT’s top 10 holdings account for about 6.98% of its total assets under management.
Performance and Risk
The ETF has lost about -5.99% so far this year and it’s up approximately 14.05% in the last one year (as of 01/27/2022). In the past 52-week period, it has traded between $42.67 and $54.42.
The fund has a beta of 1.49 and standard deviation of 35.30% 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.
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 $14.81 billion in assets, Vanguard SmallCap Value ETF has $25.23 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.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.