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Is First Trust STOXX European Select Dividend Index Fund (FDD) a Hot ETF Right Now?

Style Box ETF report for DEF

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?

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.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

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.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

Because the fund has amassed over $384.03 M, this makes it one of the larger ETFs in the European Equity ETFs. FDD is managed by First Trust Advisors. This particular fund seeks to match the performance of the STOXX Europe Select Dividend 30 Index before fees and expenses.

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.

Annual operating expenses for this ETF are 0.60%, making it one of the more expensive products in the space.

The fund has a 12-month trailing dividend yield of 4.72%.

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.

Looking at individual holdings, Glaxosmithkline Plc (GSK.LN) accounts for about 5.82% of total assets, followed by Sse Plc (SSE.LN) and National Grid Plc (NG/.LN).

FDD's top 10 holdings account for about 45.96% of its total assets under management.

Performance and Risk

The ETF has lost about -4.61% so far this year and is down about -4.07% in the last one year (as of 12/04/2018). In the past 52-week period, it has traded between $12.27 and $14.77.

The ETF has a beta of 0.77 and standard deviation of 14.75% 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 Index Fund is a reasonable option for investors seeking to outperform the European Equity ETFs segment of the market. However, there are other ETFs in the space which investors could 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 $7.69 B in assets, Vanguard FTSE Europe ETF has $14.40 B. EZU has an expense ratio of 0.49% 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.

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.


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