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Should First Trust Morningstar Dividend Leaders ETF (FDL) Be on Your Investing Radar?

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Looking for broad exposure to the Large Cap Value segment of the US equity market? You should consider the First Trust Morningstar Dividend Leaders ETF (FDL - Free Report) , a passively managed exchange traded fund launched on 03/09/2006.

The fund is sponsored by First Trust Advisors. It has amassed assets over $5.04 billion, making it one of the average sized ETFs attempting to match the Large Cap Value segment of the US equity market.

Why Large Cap Value

Companies that fall in the large cap category tend to have a market capitalization above $10 billion. They tend to be stable companies with predictable cash flows and are usually less volatile than mid and small cap companies.

Value stocks are known for their lower than average price-to-earnings and price-to-book ratios, but investors should also note their lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.

Costs

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 0.45%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 3.44%.

Sector Exposure and Top Holdings

ETFs offer a 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.

This ETF has heaviest allocation to the Energy sector--about 21.60% of the portfolio. Financials and Consumer Staples round out the top three.

Looking at individual holdings, Exxon Mobil Corporation (XOM - Free Report) accounts for about 10.41% of total assets, followed by Verizon Communications Inc. (VZ - Free Report) and Abbvie Inc. (ABBV - Free Report) .

The top 10 holdings account for about 54.81% of total assets under management.

Performance and Risk

FDL seeks to match the performance of the Morningstar Dividend Leaders Index before fees and expenses. The Morningstar Dividend Leaders Index consists of stocks listed on one of the three major exchanges, NYSE, NYSE Amex or Nasdaq, that have shown dividend consistency and dividend sustainability.

The ETF has added roughly 3.83% so far this year and is up about 6.97% in the last one year (as of 01/16/2023). In the past 52-week period, it has traded between $32.13 and $39.18.

The ETF has a beta of 0.87 and standard deviation of 25.01% for the trailing three-year period, making it a medium risk choice in the space. With about 100 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Morningstar Dividend Leaders ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FDL is an excellent option for investors seeking exposure to the Style Box - Large Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.

The iShares Russell 1000 Value ETF (IWD - Free Report) and the Vanguard Value ETF (VTV - Free Report) track a similar index. While iShares Russell 1000 Value ETF has $55.60 billion in assets, Vanguard Value ETF has $100.80 billion. IWD has an expense ratio of 0.18% and VTV charges 0.04%.

Bottom-Line

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

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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