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Should First Trust Small Cap Value AlphaDEX ETF (FYT) Be on Your Investing Radar?

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The First Trust Small Cap Value AlphaDEX ETF (FYT - Free Report) was launched on 04/19/2011, and is a passively managed exchange traded fund designed to offer broad exposure to the Small Cap Value segment of the US equity market.

The fund is sponsored by First Trust Advisors. It has amassed assets over $222.59 million, making it one of the average sized ETFs attempting to match the Small Cap Value segment of the US equity market.

Why Small Cap Value

Small cap companies have market capitalization below $2 billion. They usually have higher potential than large and mid cap companies with stocks but higher risk.

Value stocks are known for their lower than average price-to-earnings and price-to-book ratios, but investors should also note their lower than average sales and earnings growth rates. When you look at long-term performance, value stocks have outperformed growth stocks in nearly all markets. But in strong bull markets, growth stocks are more likely to be winners.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are 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 1.02%.

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 Financials sector--about 33.90% of the portfolio. Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, American National Group, Inc. (ANAT - Free Report) accounts for about 0.83% of total assets, followed by Mr. Cooper Group Inc. (COOP - Free Report) and Meritage Homes Corporation (MTH - Free Report) .

The top 10 holdings account for about 7.37% of total assets under management.

Performance and Risk

FYT seeks to match the performance of the Nasdaq AlphaDEX Small Cap Value Index before fees and expenses. 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.

The ETF return is roughly 25.81% so far this year and is up about 53.68% in the last one year (as of 10/12/2021). In the past 52-week period, it has traded between $31.42 and $53.68.

The ETF has a beta of 1.54 and standard deviation of 35.58% for the trailing three-year period, making it a high risk choice in the space. With about 263 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Small Cap Value 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, FYT is a sufficient option for those seeking exposure to the Style Box - Small Cap Value area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Value ETF (IWN - Free Report) and the Vanguard SmallCap Value ETF (VBR - Free Report) track a similar index. While iShares Russell 2000 Value ETF has $16.16 billion in assets, Vanguard SmallCap Value ETF has $24.66 billion. IWN has an expense ratio of 0.24% and VBR 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.

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