The First Trust Multi Cap Growth AlphaDEX ETF (FAD) made its debut on 05/08/2007, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - All Cap Growth category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
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.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
FAD is managed by First Trust Advisors, and this fund has amassed over $200.13 million, which makes it one of the average sized ETFs in the Style Box - All Cap Growth. This particular fund, 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
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 0.66% for this ETF, which makes it one of the more expensive products in the space.
It has a 12-month trailing dividend yield of 0.44%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FAD, it has heaviest allocation in the Information Technology sector --about 34% of the portfolio --while Healthcare and Consumer Discretionary round out the top three.
When you look at individual holdings, The Trade Desk, Inc. (class A) (NASDAQ:TTD) accounts for about 0.65% of the fund's total assets, followed by Pinterest, Inc (class A) (NYSE:PINS) and Snap Inc. (class A) (NYSE:SNAP).
Its top 10 holdings account for approximately 5.43% of FAD's total assets under management.
Performance and Risk
Year-to-date, the First Trust Multi Cap Growth AlphaDEX ETF has added roughly 29.87% so far, and was up about 32.30% over the last 12 months (as of 12/14/2020). FAD has traded between $52.24 and $100.20 in this past 52-week period.
The fund has a beta of 1.12 and standard deviation of 25.42% for the trailing three-year period, which makes FAD a medium risk choice in this particular 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 $1.92 billion in assets, iShares Core S&P U.S. Growth ETF has $10.04 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
First Trust US Equity Opportunities ETF (FPX): ETF Research Reports
The Trade Desk Inc. (TTD): Free Stock Analysis Report
iShares Core S&P U.S. Growth ETF (IUSG): ETF Research Reports
Snap Inc. (SNAP): Free Stock Analysis Report
Pinterest, Inc. (PINS): Free Stock Analysis Report
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