A smart beta exchange traded fund, the First Trust Dow Jones Global Select Dividend ETF (FGD) debuted on 11/21/2007, and offers broad exposure to the Broad Developed World ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
Because the fund has amassed over $386.84 million, this makes it one of the average sized ETFs in the Broad Developed World ETFs. FGD is managed by First Trust Advisors. FGD, before fees and expenses, seeks to match the performance of the Dow Jones Global Select Dividend Index.
This Index is an indicated annual dividend yield weighted index of 100 stocks selected from the developed-market portion of the Dow Jones World Index.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Operating expenses on an annual basis are 0.59% for FGD, making it one of the more expensive products in the space.
The fund has a 12-month trailing dividend yield of 5.97%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Looking at individual holdings, Bankia, S.a. (BKIA.SM) accounts for about 2.43% of total assets, followed by Yue Yuen Industrial (holdings) Limited (551.HK) and Drax Group Plc (LON:DRX.LN).
The top 10 holdings account for about 15.52% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Dow Jones Global Select Dividend ETF has lost about -8.12% so far, and is down about -4.53% over the last 12 months (as of 11/27/2020). FGD has traded between $13.90 and $25.20 in this past 52-week period.
The ETF has a beta of 0.96 and standard deviation of 24.82% for the trailing three-year period, making it a low risk choice in the space. With about 96 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Dow Jones Global Select Dividend ETF is not a suitable option for investors seeking to outperform the Broad Developed World ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
IShares MSCI ACWI ETF (ACWI) tracks MSCI All Country World Index and the Vanguard Total World Stock ETF (VT) tracks FTSE Global All Cap Index. IShares MSCI ACWI ETF has $14.41 billion in assets, Vanguard Total World Stock ETF has $15.94 billion. ACWI has an expense ratio of 0.32% and VT charges 0.08%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Developed World ETFs.
Bottom Line
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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First Trust Dow Jones Global Select Dividend ETF (FGD): ETF Research Reports
iShares MSCI ACWI ETF (ACWI): ETF Research Reports
Vanguard Total World Stock ETF (VT): ETF Research Reports
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