Launched on 01/07/2014, the First Trust Rising Dividend Achievers ETF (RDVY - Free Report) is a smart beta exchange traded fund offering broad exposure to the Large Cap ETFs category of the U.S. equity 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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer 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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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
RDVY is managed by First Trust Advisors, and this fund has amassed over $488.72 M, which makes it one of the average sized ETFs in the Large Cap ETFs. This particular fund seeks to match the performance of the NASDAQ US Rising Dividend Achievers Index before fees and expenses.
The Index is designed to provide access to a diversified portfolio of companies with a history of paying dividends.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Annual operating expenses for this ETF are 0.50%, making it one of the more expensive products in the space.
RDVY's 12-month trailing dividend yield is 1.33%.
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.
Representing 29.50% of the portfolio, the fund has heaviest allocation to the Financials sector; Consumer Discretionary and Information Technology round out the top three.
Looking at individual holdings, Valero Energy Corporation (VLO - Free Report) accounts for about 2.50% of total assets, followed by Best Buy Co., Inc. (BBY - Free Report) and Automatic Data Processing, Inc. (ADP - Free Report) .
Its top 10 holdings account for approximately 22.2% of RDVY's total assets under management.
Performance and Risk
So far this year, the ETF return is roughly 2.25%, and is up about 17.05% in the last one year (as of 05/18/2018). RDVY has traded between $26.49 and $31.88 in the past 52-week period.
The ETF has a beta of 1.01 and standard deviation of 15.17% for the trailing three-year period, making it a medium choice in the space. With about 50 holdings, it has more concentrated exposure than peers.
First Trust Rising Dividend Achievers ETF is an excellent option for investors seeking to outperform the Large Cap ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
IShares Russell 1000 Value ETF (IWD - Free Report) tracks Russell 1000 Value Index and the Vanguard Value ETF (VTV - Free Report) tracks CRSP U.S. Large Cap Value Index. IShares Russell 1000 Value ETF has $36.69 B in assets, Vanguard Value ETF has $36.28 B. IWD has an expense ratio of 0.20% and VTV charges 0.05%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Large Cap 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.