On March 15, First Trust Advisors launched an ETF on the American Stock Exchange comprising the top 100 dividend-yielding stocks of the Morningstar Dividend Leaders Index.
Trading under the symbol FDL, the ETF is weighted in proportion to the dividends available to investors. To be included in the index, stocks must have paid a dividend for the past five years, as well as carry the potential for sustaining a consistent dividend payout.
Historically back-tracked from June 1997, the ETF would have had a 13.9% average return and a 4.3% average yield. It carries a 45 bps management fee.
“The focus on dividend yield paid off handsomely in 2000 and 2001,” says Morningstar’s managing director, Don Phillips. “The overall result of this fund is a lower volatility in the investment experience. Investors like to hold onto [such] investments.”
Phillips says the new ETF makes sense for a fairly broad audience, but could be most appealing to members of the baby boomer generation interested in a consistent income stream.
The estimated turnover rate is 25% to 35%, according to Amex ETF marketplace VP, Tom Rzepski.
The top five holdings of the fund are: Citigroup, Bank of America, Altria Group, Verizon Communications, and JP Morgan.
Rzepski and Phillips acknowledge that financial services stocks, known for paying dividends, carry the most weight in the fund, but Rzepski argues that a cap on stock concentration–10% for a single company, 30% for an industry– would help diversify the fund and limit volatility.
The new ETF is First Trust Advisors’ second on the market. Its first, the First Trust Dow Jones Select MicroCap Index (FDM), has had a 52-week trading range of 18.87-22.48.