A smart beta exchange traded fund, the First Trust Multi Cap Growth AlphaDEX ETF (FAD) 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.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by First Trust Advisors. FAD has been able to amass assets over $208.08 million, making it one of the average sized ETFs in the Style Box - All Cap Growth. FAD, before fees and expenses, 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
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.
With one of the more expensive products in the space, this ETF has annual operating expenses of 0.66%.
The fund has a 12-month trailing dividend yield of 0.31%.
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.
FAD's heaviest allocation is in the Information Technology sector, which is about 33.80% of the portfolio. Its Healthcare and Consumer Discretionary round out the top three.
Looking at individual holdings, Moderna, Inc. (NASDAQ:MRNA) accounts for about 0.53% of total assets, followed by Roku, Inc. (NASDAQ:ROKU) and Applied Materials, Inc. (NASDAQ:AMAT).
The top 10 holdings account for about 5.06% of total assets under management.
Performance and Risk
The ETF has added roughly 4.39% so far this year and is up about 36.42% in the last one year (as of 01/28/2021). In the past 52-week period, it has traded between $52.24 and $111.64.
The ETF has a beta of 1.13 and standard deviation of 25.63% 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.
Alternatives
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) tracks IPOX-100 U.S. Index and the iShares Core S&P U.S. Growth ETF (IUSG) tracks S&P 900 Growth Index. First Trust US Equity Opportunities ETF has $1.96 billion in assets, iShares Core S&P U.S. Growth ETF has $10.31 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.
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 Multi Cap Growth AlphaDEX ETF (FAD): ETF Research Reports
Moderna, Inc. (MRNA): Free Stock Analysis Report
Applied Materials, Inc. (AMAT): Free Stock Analysis Report
First Trust US Equity Opportunities ETF (FPX): ETF Research Reports
iShares Core S&P U.S. Growth ETF (IUSG): ETF Research Reports
Roku, Inc. (ROKU): Free Stock Analysis Report
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