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

Sweta Killa

Making its debut on 08/27/2007, smart beta exchange traded fund First Trust STOXX European Select Dividend Index Fund (FDD) provides investors broad exposure to the European Equity ETFs category of the market.

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.

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.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

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.

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. FDD has been able to amass assets over $358.75 M, making it one of the larger ETFs in the European Equity ETFs. This particular fund, 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

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

With one of the more expensive products in the space, this ETF has annual operating expenses of 0.60%.

The fund has a 12-month trailing dividend yield of 4.78%.

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.

Looking at individual holdings, Sse Plc (SSE.LN) accounts for about 5.84% of total assets, followed by United Utilities Group Plc (UU/.LN) and Glaxosmithkline Plc (GSK.LN).

The top 10 holdings account for about 46.46% of total assets under management.

Performance and Risk

Year-to-date, the First Trust STOXX European Select Dividend Index Fund has added roughly 5.61% so far, and is down about -3.49% over the last 12 months (as of 02/11/2019). FDD has traded between $11.69 and $14.44 in this past 52-week period.

FDD has a beta of 0.74 and standard deviation of 14.30% 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 $6.09 B in assets, Vanguard FTSE Europe ETF has $13.27 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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