A smart beta exchange traded fund, the First Trust Multi Cap Growth AlphaDEX ETF (
FAD Quick Quote FAD - Free Report) debuted on 05/08/2007, and offers broad exposure to the Style Box - All Cap Growth 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.
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.
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.
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
The fund is sponsored by First Trust Advisors. It has amassed assets over $218.71 million, making it one of the average sized ETFs in the Style Box - All Cap Growth. Before fees and expenses, this particular fund 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 0.63% for this ETF, which makes it one of the more expensive products in the space.
FAD's 12-month trailing dividend yield is 0.17%.
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.
This ETF has heaviest allocation in the Information Technology sector - about 29.20% of the portfolio. Healthcare and Consumer Discretionary round out the top three.
Looking at individual holdings, Moderna, Inc. (
MRNA Quick Quote MRNA - Free Report) accounts for about 0.56% of total assets, followed by Novavax, Inc. ( NVAX Quick Quote NVAX - Free Report) and Snap Inc. (class A) ( SNAP Quick Quote SNAP - Free Report) .
The top 10 holdings account for about 4.99% of total assets under management.
Performance and Risk
The ETF has added roughly 12.54% and is up about 68.80% so far this year and in the past one year (as of 04/29/2021), respectively. FAD has traded between $66.86 and $118.03 during this last 52-week period.
The ETF has a beta of 1.10 and standard deviation of 26.03% for the trailing three-year period, making it a medium risk choice in the space. With about 675 holdings, it effectively diversifies company-specific risk.
First Trust Multi Cap Growth AlphaDEX ETF is an excellent option for investors seeking to outperform the Style Box - All Cap Growth segment of the market. There are other ETFs in the space which investors could consider as well.
First Trust US Equity Opportunities ETF (
FPX Quick Quote FPX - Free Report) tracks IPOX-100 U.S. Index and the iShares Core S&P U.S. Growth ETF ( IUSG Quick Quote IUSG - Free Report) tracks S&P 900 Growth Index. First Trust US Equity Opportunities ETF has $2.07 billion in assets, iShares Core S&P U.S. Growth ETF has $11.25 billion. FPX has an expense ratio of 0.58% 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.
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.