The First Trust Multi Cap Growth AlphaDEX ETF (FAD) is a smart beta exchange-traded fund (ETF) that seeks to offer broad exposure to the All Cap Growth category of the market. Launched on May 8, 2007, FAD utilizes the AlphaDEX stock selection methodology to identify companies with potentially superior risk-return characteristics. This methodology, unlike traditional market-cap weighted indexes, focuses on fundamental factors rather than just company size.
What are Smart Beta ETFs?
Smart beta ETFs aim to outperform traditional market-cap weighted indexes by employing specific strategies beyond just market capitalization. They utilize factors like value, growth, momentum, and quality to select stocks, hoping to achieve better risk-adjusted returns. While market-cap weighted indexes passively reflect the market, smart beta strategies actively seek to identify stocks with the potential for outperformance.
FAD’s Management and Index Tracking:
First Trust Advisors manages the FAD ETF. With over $204.85 million in assets, it falls within the average size range for ETFs in the All Cap Growth category. FAD seeks to mirror the performance of the Nasdaq AlphaDEX Multi Cap Growth Index. This index employs the AlphaDEX methodology, drawing stocks from the NASDAQ US 500 Large Cap Index, NASDAQ US 600 Mid Cap Index, and NASDAQ US 700 Small Cap Index.
Cost and Expense Ratio:
The expense ratio of an ETF is crucial for understanding its cost structure. FAD has an annual operating expense of 0.64%, aligning with the average expense ratio for similar ETFs. It also pays a 12-month trailing dividend yield of 0.30%.
Sector Exposure and Top Holdings:
FAD’s portfolio is diversified, with its heaviest allocation in the Industrials sector, representing about 26.10% of the total holdings. Information Technology and Consumer Discretionary sectors round out the top three. Nvidia Corporation is the fund’s largest individual holding, accounting for about 0.62% of total assets, followed by Vistra Corp. and Arista Networks, Inc. Its top 10 holdings collectively represent approximately 5.3% of FAD’s total assets under management.
Performance and Risk:
Over the past year, FAD has exhibited strong performance, gaining around 18.30% (as of August 15, 2024). Its performance this year stands at 10.63%. In the past 52 weeks, the ETF has traded between $92.91 and $129.73. Based on trailing three-year data, FAD’s beta is 1.11 and its standard deviation is 20.62%, indicating a medium risk profile within the All Cap Growth segment. With approximately 672 holdings, the ETF effectively mitigates company-specific risk through diversification.
Alternatives:
Investors looking for alternatives to FAD can consider ETFs like the IShares Morningstar Growth ETF (ILCG) and the iShares Core S&P U.S. Growth ETF (IUSG). ILCG tracks the MORNINGSTAR US LARGE-MID CP BRD GRWTH ID index, while IUSG tracks the S&P 900 Growth Index. ILCG has accumulated $2.23 billion in assets, while IUSG boasts $18.62 billion in assets. Both ETFs have expense ratios of 0.04%. Investors seeking lower-cost and lower-risk options could consider traditional market-cap weighted ETFs that aim to replicate the returns of the All Cap Growth segment.
Overall, the First Trust Multi Cap Growth AlphaDEX ETF (FAD) presents a viable option for investors seeking to capitalize on growth opportunities within the All Cap Growth segment. Its smart beta approach, diversified portfolio, and competitive expense ratio make it a compelling choice for growth-oriented investors. However, it’s crucial for investors to conduct thorough research and consider their individual risk tolerance and investment goals before making any investment decisions.
