Should the First Trust Morningstar Dividend Leaders ETF (FDL) Be on Your Investment Radar?

The First Trust Morningstar Dividend Leaders ETF (FDL - Free Report) was launched on 03/09/2006. It is a passively managed exchange-traded fund designed to provide broad exposure to the Large Cap Value segment of the US equity market.

Sponsored by First Trust Advisors, FDL has accumulated assets exceeding $4.49 billion, making it one of the larger ETFs focused on the Large Cap Value sector in the United States.

Understanding Large Cap Value

Large cap companies typically have market capitalizations above $10 billion. These companies are recognized for their stability, predictable cash flows, and generally lower volatility compared to mid and small-cap companies.

Value stocks are characterized by lower than average price-to-earnings and price-to-book ratios. Additionally, they often show lower sales and earnings growth rates. Historically, value stocks have outperformed their growth counterparts in various market conditions, although they may lag behind during strong bull markets.

Cost Considerations

Cost is a critical aspect to consider when selecting the right ETF. Cheaper funds can often outperform their more expensive alternatives if all other factors remain equal.

The annual operating expense for the First Trust Morningstar Dividend Leaders ETF is 0.45%, which is competitive with most similar products in the market.

Currently, the fund offers a 12-month trailing dividend yield of 4.95%.

Sector Allocations and Major Holdings

While ETFs provide diversified exposure to reduce single-stock risk, investors should still examine the fund's actual holdings. Fortunately, most ETFs maintain transparency by disclosing their holdings regularly.

The largest allocation for FDL is in the Healthcare sector, making up about 21.50% of the portfolio, followed by Financials and Consumer Staples.

In terms of major holdings, AbbVie Inc. (ABBV - Free Report) constitutes roughly 8.38% of the total assets. This is followed by Verizon Communications Inc. (VZ - Free Report) and Chevron Corporation (CVX - Free Report). The top 10 holdings collectively represent approximately 55.71% of the fund's assets.

Performance and Risk Assessment

The goal of FDL is to mirror the performance of the Morningstar Dividend Leaders Index before expenses. This index features stocks from one of the major exchanges (NYSE, NYSE Amex, or Nasdaq) that have demonstrated consistent and sustainable dividend payouts.

As of January 15, 2025, the ETF has experienced a gain of approximately 0.17% for the current year and an increase of around 17.60% over the past year. In the last 52 weeks, it has traded between $35.29 and $43.95.

FDL has a beta of 0.88 and a standard deviation of 14.93% over the trailing three-year period, making it a medium-risk investment. With about 96 holdings, the fund effectively diversifies specific company risks.

Alternative Investment Options

The First Trust Morningstar Dividend Leaders ETF has a Zacks ETF Rank of 3 (Hold). This ranking is based on expected asset class returns, expense ratios, and momentum, among other criteria. Thus, FDL is a suitable choice for investors looking to gain exposure to the Large Cap Value segment of the market. Other ETFs worth considering include the Schwab U.S. Dividend Equity ETF (SCHD - Free Report) and the Vanguard Value ETF (VTV - Free Report), both of which track similar indices. The Schwab U.S. Dividend Equity ETF boasts $66.40 billion in assets, while the Vanguard Value ETF has $129.12 billion in assets under management, with fees of 0.06% and 0.04%, respectively.

Conclusion

More retail and institutional investors are opting for passively managed ETFs because of their low costs, transparency, flexibility, and tax efficiency; these investment vehicles are particularly well-suited for long-term growth.

For more information on this ETF and others, it is advisable to explore products that align with your investing goals and stay updated on developments within the realm of ETFs.

ETF, Investment, Market