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

Zacks Equity Research
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The First Trust STOXX European Select Dividend Index Fund (FDD) was launched on 08/27/2007, and is a smart beta exchange traded fund designed to offer broad exposure to the European Equity ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

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.

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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by First Trust Advisors, and has been able to amass over $358.32 M, which makes 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

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.60% for FDD, making it one of the more expensive products in the space.

It has a 12-month trailing dividend yield of 4.85%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

When you look at individual holdings, Glaxosmithkline Plc (GSK.LN) accounts for about 5.75% of the fund's total assets, followed by Sse Plc (SSE.LN) and United Utilities Group Plc (UU/.LN).

Its top 10 holdings account for approximately 45.76% of FDD's total assets under management.

Performance and Risk

The ETF has added roughly 4.02% and is down about -9.69% so far this year and in the past one year (as of 01/18/2019), respectively. FDD has traded between $11.69 and $14.77 during this last 52-week period.

FDD has a beta of 0.72 and standard deviation of 14.49% 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.

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 $6.40 B in assets, Vanguard FTSE Europe ETF has $13.34 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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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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