Designed to provide broad exposure to the European Equity ETFs category of the U.S. equity market, the First Trust STOXX European Select Dividend Index Fund (FDD - Free Report) is a smart beta exchange traded fund launched on 08/27/2007.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of 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
Because the fund has amassed over $573.47 M, this makes it one of the average sized ETFs in the European Equity ETFs. FDD is managed by First Trust Advisors. 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
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 FDD are 0.60%, which makes it the most expensive product in the space.
The fund has a 12-month trailing dividend yield of 2.87%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
When you look at individual holdings, Sse Plc (SSE.LN) accounts for about 6.47% of the fund's total assets, followed by Royal Dutch Shell Plc (class B) (RDSB.LN) and Glaxosmithkline Plc (GSK.LN).
FDD's top 10 holdings account for about 45.22% of its total assets under management.
Performance and Risk
The ETF return is roughly 4.43% so far this year and it's up approximately 12.24% in the last one year (as of 05/10/2018). In the past 52-week period, it has traded between $12.94 and $14.77.
The ETF has a beta of 0.86 and standard deviation of 15.61% for the trailing three-year period, making it a medium choice in the space. With about 31 holdings, it has more concentrated exposure than peers.
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 - Free Report) tracks Northern Trust International Quality Dividend Defensive Index and the FlexShares International Quality Dividend Index Fund (IQDF - Free Report) tracks Northern Trust International Quality Dividend Index. FlexShares International Quality Dividend Defensive Index Fund has $101.35 M in assets, FlexShares International Quality Dividend Index Fund has $1.08 B. 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.
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.