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?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking 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 $207.67 million, making it one of the average sized ETFs in the European Equity ETFs. This particular fund seeks to match the performance of the STOXX Europe Select Dividend 30 Index before fees and expenses.
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 0.58% for FDD, making it on par with most peer products in the space.
The fund has a 12-month trailing dividend yield of 3.55%.
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.
When you look at individual holdings, Aegon N.v. (AGN.NA) accounts for about 6.38% of the fund's total assets, followed by Standard Life Aberdeen Plc (SLA.LN) and Legal & General Group Plc (LGEN.LN).
Its top 10 holdings account for approximately 46.88% of FDD's total assets under management.
Performance and Risk
The ETF has lost about -20.41% so far this year and is down about -10.53% in the last one year (as of 07/16/2020). In the past 52-week period, it has traded between $8.41 and $14.36.
The fund has a beta of 0.85 and standard deviation of 23.67% 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.
JPMorgan BetaBuilders Europe ETF (BBEU) tracks MORNINGSTAR DEV EUROPE TARGET MKT EXP ID and the Vanguard FTSE Europe ETF (VGK) tracks FTSE Developed Europe All Cap Index. JPMorgan BetaBuilders Europe ETF has $5.48 billion in assets, Vanguard FTSE Europe ETF has $11.67 billion. BBEU has an expense ratio of 0.09% and VGK charges 0.08%.
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.
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First Trust STOXX European Select Dividend ETF (FDD): ETF Research Reports
Vanguard FTSE Europe ETF (VGK): ETF Research Reports
JPMorgan BetaBuilders Europe ETF (BBEU): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.