Designed to provide broad exposure to the Mid Cap Growth segment of the US equity market, the First Trust Mid Cap Growth AlphaDEX ETF (FNY) is a passively managed exchange traded fund launched on 04/19/2011.
The fund is sponsored by First Trust Advisors. It has amassed assets over $349.92 million, making it one of the smaller ETFs attempting to match the Mid Cap Growth segment of the US equity market.
Why Mid Cap Growth
Compared to large and small cap companies, mid cap businesses tend to have higher growth prospects and are less volatile, respectively, with market capitalization between $2 billion and $10 billion. Thus they have a nice balance of growth potential and stability.
Growth stocks have higher than average sales and earnings growth rates. While these are expected to grow faster than the broader market, they also have higher valuations. Additionally, growth stocks have a greater level of risk associated with them. Compared to value stocks, growth stocks are a safer bet in a strong bull market, but don’t perform as strongly in almost all other financial environments.
Costs
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 counterparts, other things remaining the same.
Annual operating expenses for this ETF are 0.70%, making it the most expensive products in the space.
It has a 12-month trailing dividend yield of 0.26%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Information Technology sector–about 25.80% of the portfolio. Healthcare and Industrials round out the top three.
Looking at individual holdings, Carvana Co. (CVNA) accounts for about 1.07% of total assets, followed by Wayfair Inc. (class A) (W) and Enphase Energy, Inc. (ENPH).
The top 10 holdings account for about 9.63% of total assets under management.
Performance and Risk
FNY seeks to match the performance of the Nasdaq AlphaDEX Mid Cap Growth Index before fees and expenses. The NASDAQ AlphaDEX Mid Cap Growth Index is an enhanced which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 600 Mid Cap Growth Index.
The ETF has gained about 9.95% so far this year and was up about 15.33% in the last one year (as of 08/20/2020). In the past 52-week period, it has traded between $31.56 and $52.93.
The ETF has a beta of 1.17 and standard deviation of 24.93% for the trailing three-year period, making it a medium risk choice in the space. With about 226 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Mid Cap Growth AlphaDEX ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FNY is an outstanding option for investors seeking exposure to the Style Box – Mid Cap Growth segment of the market. There are other additional ETFs in the space that investors could consider as well.
The Vanguard MidCap Growth ETF (VOT) and the iShares Russell MidCap Growth ETF (IWP) track a similar index. While Vanguard MidCap Growth ETF has $8.25 billion in assets, iShares Russell MidCap Growth ETF has $13.18 billion. VOT has an expense ratio of 0.07% and IWP charges 0.24%.
Bottom-Line
While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.
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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