A smart beta exchange traded fund, the First Trust STOXX European Select Dividend Index Fund (FDD) debuted on 08/27/2007, and offers 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.
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.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
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
The fund is managed by First Trust Advisors. FDD has been able to amass assets over $294.24 M, making it one of the larger 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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for FDD are 0.57%, which makes it on par with most peer products in the space.
FDD's 12-month trailing dividend yield is 4.48%.
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, Sse Plc (SSE.LN) accounts for about 5.28% of the fund's total assets, followed by Intesa Sanpaolo Spa (ISP.IM) and Societe Generale S.a. (GLE.FP).
Its top 10 holdings account for approximately 41% of FDD's total assets under management.
Performance and Risk
The ETF has added roughly 10.76% and was up about 1.76% so far this year and in the past one year (as of 09/18/2019), respectively. FDD has traded between $11.69 and $13.32 during this last 52-week period.
FDD has a beta of 0.71 and standard deviation of 11.37% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 30 holdings, it has more concentrated exposure than peers.
First Trust STOXX European Select Dividend Index Fund 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 $5.42 B in assets, Vanguard FTSE Europe ETF has $13.27 B. EZU has an expense ratio of 0.47% and VGK charges 0.09%.
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.
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 STOXX European Select Dividend Index Fund (FDD): ETF Research Reports
Vanguard FTSE Europe ETF (VGK): ETF Research Reports
iShares MSCI Eurozone ETF (EZU): ETF Research Reports
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