Making its debut on 08/27/2007, smart beta exchange traded fund First Trust STOXX European Select Dividend ETF (FDD) provides investors broad exposure to the European Equity ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
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.
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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
Managed by First Trust Advisors, FDD has amassed assets over $331.94 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
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 0.57%, making it on par with most peer products in the space.
FDD's 12-month trailing dividend yield is 4.82%.
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 7.14% of total assets, followed by Intesa Sanpaolo Spa (ISP.IM) and Swiss Prime Site Ag (SPSN.SW).
Its top 10 holdings account for approximately 44.68% of FDD's total assets under management.
Performance and Risk
The ETF has lost about -2.69% and is up roughly 12.92% so far this year and in the past one year (as of 02/25/2020), respectively. FDD has traded between $11.93 and $14.36 during this last 52-week period.
The fund has a beta of 0.73 and standard deviation of 11.39% for the trailing three-year period, which makes FDD a medium risk choice in this particular space. With about 31 holdings, it has more concentrated exposure than peers.
First Trust STOXX European Select Dividend ETF 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 $5.40 B in assets, Vanguard FTSE Europe ETF has $14.49 B. EZU has an expense ratio of 0.49% 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.
Click to get this free report First Trust STOXX European Select Dividend ETF (FDD): ETF Research Reports iShares MSCI Eurozone ETF (EZU): ETF Research Reports Vanguard FTSE Europe ETF (VGK): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research