An ETF fund debuted back in 2003, FVD (First Trust Value Line Dividend Index, Expense Ratio 0.70%), traded at a fresh multi-year high this week.
The majority of investment advisors, whether they are inclined to use ETFs or not are certainly familiar with the company Value Line, and their trademark logo (a building with stone columns centered on a wide letter “V”), given the firm’s eighty-two year existence.
The particular index that FVD follows entails Value Line taking a universe of publicly traded companies, and filtering out components that rank either #1 or #2 in terms of “Safety” (Value Line Safety Ranking System).
From the companies that are left over, Value Line then isolates the companies that have above average dividend yields when compared to the yield of the S&P 500 Index itself.
The next level of screening involves Value Line eliminating companies that carry less than a $1 billion market capitalization. Finally, and much like many First Trust ETF products, the index likes to be “equally weighted” over time, and on a monthly basis the portfolio is re-balanced by rule.
This, mechanically has the effect of selling securities that have run up in price and whose weightings in the overall portfolio have run higher, while buying securities that have fallen in price and whose weightings have relatively decreased in the context of the overall basket, in order to bring “everything back to even” each month.
It is hard to argue with the approach, as it is universally known (or should be known, especially given Guggenheim’s recent celebration of ten years of live performance in RSP (Guggenheim S&P Equal Weight) last week) that the “equal weighted” approach to indexing has produced very impressive results compared to market capitalization weighted approaches in a live returns environment, and the log of data or history to be measured, keeps extending each day (for those involved in due diligence that may not be interested in measuring what some may consider “short term” performance).
FVD currently sports a 2.62% yield (S&P 500’s yield is 2.03%) and is the third largest ETF offered by First Trust in terms of assets under management ($637 million) and has seen a healthy uptick in trading volume in the past five sessions and has impressively outperformed benchmarks in the trailing one and five year periods.
First Trust Value Line Dividend Index
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- Value Line