Designed to provide broad exposure to the European Equity ETFs category of the market, the First Trust STOXX European Select Dividend Index Fund (FDD) is a smart beta exchange traded fund launched on 08/27/2007.
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.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
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.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by First Trust Advisors, and has been able to amass over $347.80 M, which makes it one of the larger ETFs in the European Equity ETFs. Before fees and expenses, this particular fund 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
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Operating expenses on an annual basis are 0.60% for FDD, making it one of the most expensive products in the space.
FDD's 12-month trailing dividend yield is 4.73%.
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.
When you look at individual holdings, Sse Plc (SSE.LN) accounts for about 5.88% of the fund's total assets, followed by Glaxosmithkline Plc (GSK.LN) and United Utilities Group Plc (UU/.LN).
The top 10 holdings account for about 46.7% of total assets under management.
Performance and Risk
The ETF has added about 6.70% so far this year and is down about -4.42% in the last one year (as of 03/11/2019). In the past 52-week period, it has traded between $11.69 and $14.44.
FDD has a beta of 0.71 and standard deviation of 14.04% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 31 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 $6.30 B in assets, Vanguard FTSE Europe ETF has $13.38 B. EZU has an expense ratio of 0.47% and VGK charges 0.10%.
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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