Designed to provide broad exposure to the Large Cap Value segment of the US equity market, the First Trust Morningstar Dividend Leaders ETF (FDL) is a passively managed exchange traded fund launched on 03/09/2006.
The fund is sponsored by First Trust Advisors. It has amassed assets over $1.93 billion, making it one of the average sized ETFs attempting to match the Large Cap Value segment of the US equity market.
Why Large Cap Value
Companies that fall in the large cap category tend to have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.
While value stocks have lower than average price-to-earnings and price-to-book ratios, they also have lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.
Costs
Investors should also pay attention to an ETF’s expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Annual operating expenses for this ETF are 0.45%, putting it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 4.48%.
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.
This ETF has heaviest allocation to the Healthcare sector–about 21.60% of the portfolio. Consumer Staples and Telecom round out the top three.
Looking at individual holdings, At&t Inc. (T) accounts for about 9.65% of total assets, followed by Chevron Corporation (CVX) and Verizon Communications Inc. (VZ).
The top 10 holdings account for about 60.06% of total assets under management.
Performance and Risk
FDL seeks to match the performance of the Morningstar Dividend Leaders Index before fees and expenses. The Morningstar Dividend Leaders Index consists of stocks listed on one of the three major exchanges, NYSE, NYSE Amex or Nasdaq, that have shown dividend consistency and dividend sustainability.
The ETF has added roughly 1.93% so far this year and was up about 19.69% in the last one year (as of 03/10/2022). In the past 52-week period, it has traded between $32.15 and $36.99.
The ETF has a beta of 0.90 and standard deviation of 23.75% for the trailing three-year period, making it a medium risk choice in the space. With about 101 holdings, it effectively diversifies company-specific risk.
Alternatives
First Trust Morningstar Dividend Leaders ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FDL is a reasonable option for those seeking exposure to the Style Box – Large Cap Value area of the market. Investors might also want to consider some other ETF options in the space.
The iShares Russell 1000 Value ETF (IWD) and the Vanguard Value ETF (VTV) track a similar index. While iShares Russell 1000 Value ETF has $56.11 billion in assets, Vanguard Value ETF has $92.16 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.
Bottom-Line
Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.
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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