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Is First Trust Dow Jones Global Select Dividend Index Fund (FGD) a Strong ETF Right Now?

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Designed to provide broad exposure to the Broad Developed World ETFs category of the market, the First Trust Dow Jones Global Select Dividend Index Fund (FGD - Free Report) is a smart beta exchange traded fund launched on 11/21/2007.

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.

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.

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.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by First Trust Advisors, FGD has amassed assets over $570.18 M, making it one of the average sized ETFs in the Broad Developed World ETFs. FGD seeks to match the performance of the Dow Jones Global Select Dividend Index before fees and expenses.

This Index is an indicated annual dividend yield weighted index of 100 stocks selected from the developed-market portion of the Dow Jones World Index.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Operating expenses on an annual basis are 0.58% for FGD, making it one of the more expensive products in the space.

FGD's 12-month trailing dividend yield is 5.82%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

When you look at individual holdings, Standard Life Aberdeen Plc (SLA.LN) accounts for about 1.82% of the fund's total assets, followed by Be Semiconductor Industries N.v. (BESI.NA) and Jb Hi-Fi Limited (JBH.AU).

Its top 10 holdings account for approximately 15.22% of FGD's total assets under management.

Performance and Risk

So far this year, FGD has added about 15.06%, and is up about 6.44% in the last one year (as of 11/05/2019). During this past 52-week period, the fund has traded between $21.06 and $24.60.

The fund has a beta of 0.80 and standard deviation of 11.53% for the trailing three-year period, which makes FGD a low risk choice in this particular space. With about 105 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Dow Jones Global Select Dividend Index Fund is a reasonable option for investors seeking to outperform the Broad Developed World ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

IShares MSCI ACWI ETF (ACWI - Free Report) tracks MSCI All Country World Index and the Vanguard Total World Stock ETF (VT - Free Report) tracks FTSE Global All Cap Index. IShares MSCI ACWI ETF has $10.90 B in assets, Vanguard Total World Stock ETF has $12.42 B. ACWI has an expense ratio of 0.31% and VT 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 Broad Developed World 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.

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