Launched on 08/27/2007, the First Trust STOXX European Select Dividend Index Fund (FDD - Free Report) is a smart beta exchange traded fund offering broad exposure to the European Equity ETFs category of the market.
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.
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.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination 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 $330.16 M, this makes it one of the larger ETFs in the European Equity ETFs. FDD is managed by First Trust Advisors. FDD seeks to match the performance of the STOXX Europe Select Dividend 30 Index before fees and expenses.
The STOXX Europe Select Dividend 30 Index consists of 30 high dividend-yielding securities selected from the STOXX Europe 600 Index.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Annual operating expenses for this ETF are 0.57%, making it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 4.71%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, 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 5.85% of the fund's total assets, followed by Intesa Sanpaolo Spa (ISP.IM) and Societe Generale S.a. (GLE.FP).
FDD's top 10 holdings account for about 41.94% of its total assets under management.
Performance and Risk
The ETF has lost about -0.34% so far this year and was up about 19.87% in the last one year (as of 01/09/2020). In the past 52-week period, it has traded between $11.93 and $14.20.
FDD has a beta of 0.71 and standard deviation of 11.21% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 33 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.
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 $5.99 B in assets, Vanguard FTSE Europe ETF has $14.53 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.