First Trust Small Cap Gr AlphaDEX® ETF's Average People Pillar and Process Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy’s management team earns an Average People Pillar rating. The strategy gets an Average Process Pillar rating.  High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Alpine Immune Sciences

Oscar Health

PROCEPT BioRobotics Corp

IES Holdings

Powell Industries

SkyWest

Greenbrier Companies

RxSight

Brookdale Senior Living

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. First Trust Small Cap Growth AlphaDEX®Fd earns an Average Process Pillar rating. 

The primary contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The stability of the management team also contributes to the process. Specifically, the fund has not seen a manager change in the last 11 years. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 29%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

 This strategy skews toward smaller, deeper value companies compared with its average peer in the Small Growth Morningstar Category. Analyzing additional factors, this strategy has continually displayed high-yield exposure compared with Morningstar Category peers during recent years, holding more companies returning cash to shareholders via dividends or buybacks. Higher-yield stocks can provide dependable income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. In recent months, the strategy was more exposed to the Yield factor compared with its Morningstar Category peers as well. The strategy has also had a defensive tilt, demonstrated by lower exposure to the quality factor than peers in recent years. This means the fund has avoided holding companies that are consistently profitable, growing, and have solid balance sheets. Lacking this ballast, the fund's prospects could rest on its ability to surpass peers during economic booms. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. Such exposure tends to pay off when markets are hot and to be costly when they are not. In this month, the strategy also had more exposure to the Volatility factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in real estate and industrials relative to the category average by 5.0 and 3.6 percentage points, respectively. The sectors with low exposure compared to category peers are technology and healthcare, underweight the average by 8.1 and 3.1 percentage points of assets, respectively. The portfolio is composed of 265 holdings and its assets are more dispersed than peers in the category. In particular, 8.5% of the fund’s assets are concentrated in the top 10 fund holdings, compared to the category average's 26.1%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 140% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Average

Process

First Trust’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. There’s a deep bench of seven managers listed on the fund. Experience on the team is abundant, with 22 years of average portfolio management experience. Together, they manage a total of 108 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate. This group has had relatively low management turnover, providing a stable environment and continuity for the strategies. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

First Trust meets the industry standard for stewardship, but it could do more to align itself with investors. It earns an Average Parent rating.

This is a team-oriented organization that eschews star managers. While exchange-traded funds represent the bulk of the firm's assets, First Trust bypasses the competitive market for low-cost beta funds, instead opting for complex strategies with higher management fees. However, the firm's focus on ETFs for future product development underpins its commitment to tax efficiency and transparency. Some of its thematic strategies appear trendy, but it stands behind them and rarely liquidates funds. 

The firm is a private partnership, controlled by Jim Bowen, the CEO. Many senior managers are limited partners. This ownership structure helps the firm stay focused on the long term and promotes retention, which has been strong for the investment team. The firm has grown considerably over the past decade and is among the largest providers of actively managed ETFs, as well as unit investment trusts. As it has grown, the firm has expanded its investment team and beefed up its technology infrastructure.

First Trust's focus is on educating advisors and providing them solutions. This may benefit investors indirectly, but First Trust could do more to directly align with investors by cutting fees and limiting trendy strategies.

Parent

First Trust Small Cap Growth AlphaDEX Fund

FYC tracks a quant-driven index that select stocks from a small-cap growth universe in an attempt to outperform the market.

The First Trust Small Cap Growth AlphaDEX ETF (FYC) made its debut on 04/19/2011, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Small Cap Growth category of the market.

Is First Trust Small Cap Growth AlphaDEX ETF (FYC) a Strong ETF Right Now?

If you're interested in broad exposure to the Small Cap Growth segment of the US equity market, look no further than the First Trust Small Cap Growth AlphaDEX ETF (FYC), a passively managed exchange traded fund launched on 04/19/2011.

Should First Trust Small Cap Growth AlphaDEX ETF (FYC) Be on Your Investing Radar?

Avantis U.S. Small Cap Value ETF

WisdomTree U.S. SmallCap Earnings Fund

First Trust Small Cap Value AlphaDEX Fund

iShares Morningstar Small-Cap Growth ETF

iShares Morningstar Small-Cap Value ETF

iShares Russell 2000 Value ETF

iShares Russell 2000 Growth ETF

Janus Henderson Small Cap Growth Alpha ETF

MFAM Small-Cap Growth ETF

Opus Small Cap Value ETF

RENN Fund

Royce Value Trust

Legg Mason Small-Cap Quality Value ETF

iShares US Small Cap Value Factor ETF

FlexShares Morningstar US Market Factor Tilt Index Fund

USAA MSCI USA Small Cap Value Momentum Blend Index ETF

Vanguard Small-Cap Growth

Vanguard Small Cap Value ETF

SPDR S&P 1500 Value Tilt ETF

Vgd Rsl2000 Grw Shs

Vanguard Russell 2000 Value ETF

Data on the rotation between small-cap growth and value stocks goes back decades. Looking back over 40 years, small value beat small growth about two-thirds of the time.

The One Chart That May Surprise You About Small-Cap Stocks

Enphase Energy

 Invesco S&P SmallCap Consumer Discretionary ETF

Invesco Solar ETF

SPDR S&P Semiconductor ETF

The stock market staged a strong rebound from the lows and is currently hitting new highs with the major bourses crossing new milestones.

1-Year Tour From Market Crash to Boom: 5 Top ETFs

GraniteShares Gold Shares

Innovator S&P 500 Buffer ETF - August

Innovator S&P 500 Buffer ETF - July

Innovator S&P 500 Buffer ETF June

Innovator S&P 500 Buffer ETF - October

Trns DS S&P 500 Shs

WisdomTree U.S. Earnings 500 Fund

Innovator IBD 50 ETF

First Trust Mid Cap Growth AlphaDEX Fund

SPDR Gold Trust

iShares S&P Mid-Cap 400 Growth ETF

iShares S&P Small-Cap 600 Growth ETF

Vanguard S&P Mid-Cap 400 Growth ETF

iShares Core S&P 500 ETF

iShares Russell Mid-Cap Growth ETF

iSh Mrng Md-CG Shs

SPDR S&P 400 Mid Cap Growth ETF

Innovator S&P 500 Power Buffer ETF - August

Innovator S&P 500 Power Buffer ETF - January

Innovator S&P 500 Power Buffer ETF June

Both Sides Now: The Active Vs. Passive Debate Revisited (Podcast Transcript)

iShares Russell 1000 Value ETF

iShares Russell 1000 Growth ETF

Invesco S&P MidCap 400 Pure Growth ETF

Invesco S&P SmallCap 600 Pure Growth ETF

The broad rally helped the S&P 500 Index to reclaim the 2,900 level and put it on track for its best month since 1974.

S&P 500 Reclaims 2,900: Growth ETFs Leading the Rally

Should First Trust Small Cap Growth AlphaDEX Fund (FYC) Be on Your Investing Radar?

Vanguard Mega Cap Growth ETF

Invesco S&P 500 Pure Growth ETF

High-growth ETFs could be on the mend and investors may want to consider this trio of funds before the market rebounds.

3 Durable High-Growth ETFs That Can Endure

News for First Trust Small Cap Growth AlphaDEX Fund ETF (FYC)