Is First Trust STOXX European Select Dividend Index Fund (FDD) A Strong ETF Right Now?

Launched on 08/27/2007, the First Trust STOXX European Select Dividend Index Fund (FDD) is a smart beta exchange traded fund offering broad exposure to the European Equity ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

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.

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

The fund is managed by First Trust Advisors. FDD has been able to amass assets over $349.28 M, making it one of the larger ETFs in the European Equity ETFs. This particular fund 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

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.

With one of the more expensive products in the space, this ETF has annual operating expenses of 0.60%.

It has a 12-month trailing dividend yield of 5.08%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

When you look at individual holdings, Glaxosmithkline Plc (LON:GSK.LN) accounts for about 5.60% of the fund's total assets, followed by Sse Plc (SSE (LON:SSE).LN) and Royal Dutch Shell (LON:RDSa) Plc (class B) (RDSB.LN).

The top 10 holdings account for about 45.48% of total assets under management.

Performance and Risk

So far this year, FDD has lost about -9.23%, and is down about -8.63% in the last one year (as of 12/27/2018). During this past 52-week period, the fund has traded between $11.69 and $14.77.

The ETF has a beta of 0.77 and standard deviation of 14.72% for the trailing three-year period, making it a medium risk choice in the space. With about 31 holdings, it has more concentrated exposure than peers.

Alternatives

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) tracks MSCI EMU Index and the Vanguard FTSE Europe ETF (VGK) tracks FTSE Developed Europe All Cap Index. IShares MSCI Eurozone ETF has $6.39 B in assets, Vanguard FTSE Europe ETF has $13.33 B. EZU has an expense ratio of 0.49% and VGK charges 0.10%.

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.

Bottom Line

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.