(Yahoo!) -- Making its debut on 09/12/2016, smart beta exchange-traded fund Fidelity High Dividend ETF provides investors broad exposure to the Style Box - All Cap Value category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide 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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
FDVV is managed by Fidelity, and this fund has amassed over $296.51 M, which makes it one of the larger ETFs in the Style Box - All Cap Value. This particular fund seeks to match the performance of the Fidelity Core Dividend Index before fees and expenses.
The Fidelity Core Dividend Index is designed to reflect the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.29%.
The fund has a 12-month trailing dividend yield of 3.69%.
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.
Looking at individual holdings, Exxon Mobil Corp accounts for about 3.03% of total assets, followed by Microsoft Corp and JP Morgan Chase.
Its top 10 holdings account for approximately 25.42% of FDVV's total assets under management.
Performance and Risk
Year-to-date, the Fidelity High Dividend ETF return is roughly 9.80% so far, and was up about 4.96% over the last 12 months (as of 03/13/2019).
FDVV has traded between $26 and $31.10 in this past 52-week period.
The fund has a beta of 0.82 and standard deviation of 10.98% for the trailing three-year period.
With about 134 holdings, it effectively diversifies company-specific risk.
Fidelity High Dividend ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.
Invesco High Yield Equity Dividend Achievers ETF (PEY) tracks NASDAQ US Dividend Achievers 50 Index and the iShares Core S&P U.S. Value ETF (IUSV) tracks S&P 900 Value Index. Invesco High Yield Equity Dividend Achievers ETF has $777.44 M in assets, iShares Core S&P U.S. Value ETF has $5.14 B. PEY has an expense ratio of 0.54% and IUSV charges 0.04%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - All Cap Value.