The First Trust Multi Cap Growth AlphaDEX ETF (FAD) was launched on 05/08/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - All Cap Growth category of the market.
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 work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
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.
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.
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 sponsored by First Trust Advisors. It has amassed assets over $214.30 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.
Annual operating expenses for this ETF are 0.63%, making it on par with most peer 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.
For FAD, it has heaviest allocation in the Information Technology sector --about 27.90% of the portfolio --while Healthcare and Consumer Discretionary round out the top three.
Taking into account individual holdings, Moderna, Inc. (NASDAQ:MRNA) accounts for about 0.56% of the fund's total assets, followed by Novavax, Inc. (NASDAQ:NVAX) and Snap Inc. (class A) (NYSE:SNAP).
The top 10 holdings account for about 4.99% of total assets under management.
Performance and Risk
The ETF return is roughly 13.25% and is up about 47.76% so far this year and in the past one year (as of 06/09/2021), respectively. FAD has traded between $73.52 and $118.03 during this last 52-week period.
FAD has a beta of 1.10 and standard deviation of 26.25% for the trailing three-year period, which makes the fund 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 a reasonable option for investors seeking to outperform the Style Box - All Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.
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 $1.94 billion in assets, iShares Core S&P U.S. Growth ETF has $11.01 billion. FPX has an expense ratio of 0.57% 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
Novavax, Inc. (NVAX): 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
Snap Inc. (SNAP): Free Stock Analysis Report
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