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

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

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

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.

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

The fund is sponsored by First Trust Advisors. It has amassed assets over $461.07 M, making 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.

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

The fund has a 12-month trailing dividend yield of 4.48%.

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, Sse Plc (SSE.LN) accounts for about 6.02% of the fund's total assets, followed by Glaxosmithkline Plc (GSK.LN) and Royal Dutch Shell Plc (class B) (RDSB.LN).

The top 10 holdings account for about 46.3% of total assets under management.

Performance and Risk

The ETF has added roughly 0.35% and it's up approximately 2.24% so far this year and in the past one year (as of 09/25/2018), respectively. FDD has traded between $12.87 and $14.77 during this last 52-week period.

The fund has a beta of 0.81 and standard deviation of 14.79% for the trailing three-year period, which makes FDD a medium choice in this particular space. With about 30 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.

FlexShares International Quality Dividend Defensive Index Fund (IQDE) tracks Northern Trust International Quality Dividend Defensive Index and the FlexShares International Quality Dividend Index Fund (IQDF) tracks Northern Trust International Quality Dividend Index. FlexShares International Quality Dividend Defensive Index Fund has $94.34 M in assets, FlexShares International Quality Dividend Index Fund has $860.63 M. IQDE has an expense ratio of 0.47% and IQDF charges 0.47%.

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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