Making its debut on 11/21/2007, smart beta exchange traded fund First Trust Dow Jones Global Select Dividend ETF (FGD) provides investors broad exposure to the Broad Developed World ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
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.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
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.
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
FGD is managed by First Trust Advisors, and this fund has amassed over $394.26 million, which makes it one of the average sized ETFs in the Broad Developed World ETFs. FGD seeks to match the performance of the Dow Jones Global Select Dividend Index before fees and expenses.
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
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.
With one of the more expensive products in the space, this ETF has annual operating expenses of 0.59%.
FGD's 12-month trailing dividend yield is 5.25%.
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, Be Semiconductor Industries N.v. (BESI.NA) accounts for about 2.63% of total assets, followed by Fortescue Metals Group Limited (FMG.AU) and Jb Hi-Fi Limited (JBH.AU).
The top 10 holdings account for about 20.25% of total assets under management.
Performance and Risk
Year-to-date, the First Trust Dow Jones Global Select Dividend ETF has lost about -23.92% so far, and is down about -14.51% over the last 12 months (as of 06/22/2020). FGD has traded between $13.90 and $25.20 in this past 52-week period.
The ETF has a beta of 0.99 and standard deviation of 23.44% for the trailing three-year period, making it a low risk choice in the space. With about 91 holdings, it effectively diversifies company-specific risk.
First Trust Dow Jones Global Select Dividend ETF is a reasonable option for investors seeking to outperform the Broad Developed World ETFs segment of the market. However, there are other ETFs in the space which investors could 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 $11.44 billion in assets, Vanguard Total World Stock ETF has $13.39 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.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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
To read this article on Zacks.com click here.
Zacks Investment Research