First Trust Multi Cap Growth AlphaDEX Fund (FAD) seeks to track the NASDAQ AlphaDEX Multi Cap Growth Index, which selects U.S. growth stocks across all market capitalizations based on fundamental growth metrics including sales growth, earnings growth, and price momentum. This multi-cap growth equity ETF provides exposure to companies demonstrating superior growth characteristics.
How It Works
FAD uses a rules-based, fundamentally-weighted approach that screens the broad U.S. equity universe for growth characteristics, then ranks companies using AlphaDEX methodology combining growth factors like revenue growth, earnings growth, and price appreciation. Selected stocks are weighted based on their growth scores rather than market capitalization, with quarterly rebalancing to maintain factor exposure. The fund typically holds 200-300 stocks across small-, mid-, and large-cap segments, with higher allocations to companies exhibiting stronger growth metrics.
Key Features
- Multi-cap approach captures growth opportunities across entire market spectrum, not limited to large-cap like many growth ETFs
- Fundamentally-weighted methodology overweights highest-scoring growth companies rather than largest by market value
- AlphaDEX factor scoring combines multiple growth metrics for more comprehensive selection than single-factor approaches
Risks
- This ETF can lose value significantly during growth stock selloffs when investors rotate to value stocks, potentially declining 40-50% in severe corrections
- Fundamental weighting creates concentration risk as top growth scorers may cluster in specific sectors like technology during certain periods
- Growth stocks typically underperform during rising interest rate environments as higher discount rates reduce present value of future earnings
Who Should Own This
Best suited as a satellite holding (10-25% of equity allocation) for aggressive growth investors with 3+ year time horizons and high risk tolerance. Appropriate for investors seeking to overweight growth factors beyond broad market exposure. Works well for younger investors in tax-advantaged accounts who can withstand significant volatility for potential long-term outperformance.