The First Trust STOXX European Select Dividend ETF (FDD) was launched on 08/27/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the European Equity ETFs category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
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.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
The fund is sponsored by First Trust Advisors. It has amassed assets over $216.09 million, making it one of the average sized ETFs in the European Equity ETFs. FDD seeks to match the performance of the STOXX Europe Select Dividend 30 Index before fees and expenses.
The STOXX Europe Select Dividend 30 Index consists of 30 high dividend-yielding securities selected from the STOXX Europe 600 Index.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Annual operating expenses for FDD are 0.58%, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 3.85%.
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, Legal & General Group Plc (LGEN.LN) accounts for about 6.40% of total assets, followed by Standard Life Aberdeen Plc (LON:SLA.LN) and Royal Dutch Shell (LON:RDSa) Plc (class B) (RDSB.LN).
The top 10 holdings account for about 46.39% of total assets under management.
Performance and Risk
The ETF has gained about 2.92% and is down about -3.23% so far this year and in the past one year (as of 02/22/2021), respectively. FDD has traded between $8.41 and $13.66 during this last 52-week period.
The ETF has a beta of 1 and standard deviation of 25.42% for the trailing three-year period, making it a medium risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.
Alternatives
First Trust STOXX European Select Dividend ETF is not a suitable option for investors seeking to outperform the European Equity ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
IShares MSCI Eurozone ETF (EZU) tracks MSCI EMU Index and the Vanguard FTSE Europe ETF (VGK) tracks FTSE Developed Europe All Cap Index. IShares MSCI Eurozone ETF has $4.86 billion in assets, Vanguard FTSE Europe ETF has $14.92 billion. EZU has an expense ratio of 0.49% and VGK 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 European Equity 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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iShares MSCI Eurozone ETF (EZU): ETF Research Reports
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