The First Trust STOXX European Select Dividend ETF (FDD Quick QuoteFDD - Free Report) 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.

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.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is sponsored by First Trust Advisors. It has amassed assets over $214.46 million, making it one of the average sized ETFs in the European Equity ETFs. FDD, 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.

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 3.46%.

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, Aegon N.v. (AGN.NA) accounts for about 6.19% of the fund's total assets, followed by Standard Life Aberdeen Plc (SLA.LN) and Legal & General Group Plc (LGEN.LN).

FDD's top 10 holdings account for about 46.47% of its total assets under management.

Performance and Risk

The ETF has lost about -6.47% so far this year and is down about -4.18% in the last one year (as of 12/15/2020). In the past 52-week period, it has traded between $8.41 and $14.36.

The fund has a beta of 0.99 and standard deviation of 25.31% 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.

Alternatives

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 Quick QuoteEZU - Free Report) tracks MSCI EMU Index and the Vanguard FTSE Europe ETF (VGK Quick QuoteVGK - Free Report) tracks FTSE Developed Europe All Cap Index. IShares MSCI Eurozone ETF has $4.90 billion in assets, Vanguard FTSE Europe ETF has $13.94 billion. EZU has an expense ratio of 0.49% 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.

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.