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Is First Trust Multi Cap Growth AlphaDEX ETF (FAD) a Strong ETF Right Now?

Smart Beta ETF report for FAD

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This story originally appeared on Zacks

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.

- Zacks

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

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.

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.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

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

The fund is sponsored by First Trust Advisors. It has amassed assets over $242.62 million, making it one of the larger 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

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Annual operating expenses for FAD are 0.63%, which makes it on par with most peer products in the space.

FAD's 12-month trailing dividend yield is 0.04%.

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 27.90% of the portfolio. Its Healthcare and Consumer Discretionary round out the top three.

When you look at individual holdings, Moderna, Inc. (MRNA) accounts for about 0.69% of the fund's total assets, followed by Fortinet, Inc. (FTNT) and Blackstone Inc. (BX).

The top 10 holdings account for about 5.51% of total assets under management.

Performance and Risk

The ETF return is roughly 15.71% so far this year and it's up approximately 29.31% in the last one year (as of 10/12/2021). In the past 52-week period, it has traded between $85.15 and $125.49.

FAD has a beta of 1.09 and standard deviation of 26.29% 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.

IShares Morningstar Growth ETF (ILCG) tracks MORNINGSTAR US LARGE-MID CP BRD GRWTH ID and the iShares Core S&P U.S. Growth ETF (IUSG) tracks S&P 900 Growth Index. IShares Morningstar Growth ETF has $2.09 billion in assets, iShares Core S&P U.S. Growth ETF has $12.24 billion. ILCG has an expense ratio of 0.04% 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

 

Blackstone Inc. (BX): Free Stock Analysis Report

 

Moderna, Inc. (MRNA): Free Stock Analysis Report

 

Fortinet, Inc. (FTNT): Free Stock Analysis Report

 

iShares Core S&P U.S. Growth ETF (IUSG): ETF Research Reports

 

iShares Morningstar Growth ETF (ILCG): ETF Research Reports

 

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Zacks Investment Research