Is First Trust STOXX European Select Dividend ETF (FDD) a Strong ETF Right Now?

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?

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 offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option 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.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Managed by First Trust Advisors, FDD has amassed assets over $227.72 million, making it one of the average sized ETFs in the European Equity ETFs. FDD, before fees and expenses, seeks to match the performance of the STOXX Europe Select Dividend 30 Index.

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.

It's 12-month trailing dividend yield comes in at 3.66%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

When you look at individual holdings, Standard Life Aberdeen Plc (LON:SLA.LN) accounts for about 6.38% of the fund's total assets, followed by Legal & General Group Plc (LGEN.LN) and Ubs Group Ag (UBSG.SW).

Its top 10 holdings account for approximately 47.31% of FDD's total assets under management.

Performance and Risk

The ETF has added about 8.46% so far this year and is up roughly 43.29% in the last one year (as of 03/16/2021). In the past 52-week period, it has traded between $8.41 and $14.18.

The ETF has a beta of 1 and standard deviation of 25.48% 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 $5 billion in assets, Vanguard FTSE Europe ETF has $15.44 billion. EZU has an expense ratio of 0.51% 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.