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

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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?

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.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

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.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other 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

FDD is managed by First Trust Advisors, and this fund has amassed over $396.14 M, which makes it one of the larger ETFs in the European Equity ETFs. Before fees and expenses, FDD 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.

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

It's 12-month trailing dividend yield comes in at 4.62%.

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.

Taking into account individual holdings, Sse Plc (SSE.LN) accounts for about 5.76% 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 46.11% of total assets under management.

Performance and Risk

Year-to-date, the First Trust STOXX European Select Dividend Index Fund has lost about -2.64% so far, and is down about -0.94% over the last 12 months (as of 11/12/2018). FDD has traded between $12.27 and $14.77 in this past 52-week period.

FDD has a beta of 0.77 and standard deviation of 14.72% 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.

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 $88.40 M in assets, FlexShares International Quality Dividend Index Fund has $774.63 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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