A smart beta exchange traded fund, the First Trust STOXX European Select Dividend Index Fund (FDD - Free Report) debuted on 08/27/2007, and offers broad exposure to the European Equity ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the 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.
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.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
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
FDD is managed by First Trust Advisors, and this fund has amassed over $356.86 M, which makes it one of the larger 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
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.
Operating expenses on an annual basis are 0.60% for FDD, making it one of the most expensive products in the space.
It's 12-month trailing dividend yield comes in at 4.65%.
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 5.78% of the fund's total assets, followed by Intesa Sanpaolo Spa (ISP.IM) and Royal Dutch Shell Plc (class B) (RDSB.LN).
The top 10 holdings account for about 41.91% of total assets under management.
Performance and Risk
Year-to-date, the First Trust STOXX European Select Dividend Index Fund has gained about 10.40% so far, and is down about -0.37% over the last 12 months (as of 04/04/2019). FDD has traded between $11.69 and $14.44 in this past 52-week period.
FDD has a beta of 0.71 and standard deviation of 13.94% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.
First Trust STOXX European Select Dividend Index Fund 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 - Free Report) tracks MSCI EMU Index and the Vanguard FTSE Europe ETF (VGK - Free Report) tracks FTSE Developed Europe All Cap Index. IShares MSCI Eurozone ETF has $6.90 B in assets, Vanguard FTSE Europe ETF has $13.76 B. EZU has an expense ratio of 0.47% and VGK charges 0.09%.
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.