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 traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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
Because the fund has amassed over $288.13 M, this makes it one of the larger ETFs in the European Equity ETFs. FDD is managed by First Trust Advisors. 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
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 FDD are 0.57%, which makes it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 5.26%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Looking at individual holdings, Sse Plc (SSE.LN) accounts for about 5.57% of total assets, followed by Intesa Sanpaolo Spa (ISP.IM) and Societe Generale S.a. (GLE.FP).
The top 10 holdings account for about 41.24% of total assets under management.
Performance and Risk
So far this year, FDD has added roughly 9.74%, and it's up approximately 2.47% in the last one year (as of 10/10/2019). During this past 52-week period, the fund has traded between $11.69 and $13.32.
FDD has a beta of 0.70 and standard deviation of 11.35% 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 $5.30 B in assets, Vanguard FTSE Europe ETF has $12.80 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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