This is a small-cap value ETF that uses the AlphaDEX method to select stocks with strong value characteristics from the Nasdaq US 700 Small Cap Index and tracks them. The selected stocks are held at equal dollar weights, which eases concentration in any single large holding.

Going beyond simple market-cap weighting, it suits actively diversifying investors who are seeking excess returns in small-cap value stocks.

It is a passive (index-tracking) ETF managed by First Trust.

The AlphaDEX selection method evaluates small-cap stocks using several growth and value metrics, picks only the highest-scoring stocks, and holds them at equal dollar weights. The resulting portfolio is re-evaluated and rebalanced every quarter, so it is refreshed on a rules-based schedule.

• Rules-based AlphaDEX stock selection
• Equal dollar weighting to ease concentration in large holdings

Assets under management (AUM) stand at $178.5M, and the total expense ratio (Expense Ratio) is 0.70% per year.

Because its stock selection and weighting methods differ from those of broad small-cap ETFs, its fee structure may differ from the category average.

Small-cap value stocks are highly sensitive to the economic cycle, so their volatility tends to be large depending on market conditions. Depending on interest rates, the economic cycle, and shifts in risk appetite, they tend to move differently from large-cap stocks.

In the small-cap category, inflows tend to increase when risk appetite is strong and fund flows tend to weaken in periods of rising volatility. Given the nature of the smart beta structure, its investor base is distinct from that of core large-cap ETFs.

Its strengths are rules-based stock selection and an equal-weighted structure, while its drawback is a fee level somewhat higher than the category average.

As comparison targets in the same small-cap value category, the table shows VBR, a lower-fee broad small-cap value ETF, along with IWD, IVE, and SPYV, which shift exposure to large-cap value stocks. If you want broader equal-weighted exposure, you can also consider RSP, an S&P 500 equal-weight ETF, and if you want to capture small caps broadly, a broad small-cap ETF such as IWM.

These are the points to review before investing in FYT. As a small-cap value smart beta ETF, it is wise to check in advance the cost burden, small-cap volatility, and the strategy tracking error that comes with rules-based selection.

Small-cap volatility and the tracking error of rules-based selection are the main drivers of short-term performance swings. A fee that is high relative to the category average can cumulatively weigh on long-term returns.

It is an option worth considering if you want diversified exposure to small-cap value stocks through rules-based selection. If cost matters most to you, it is wise to compare it with a lower-fee broad small-cap value ETF.