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A smart beta exchange traded fund, the First Trust Rising Dividend Achievers ETF (RDVY) debuted on 01/07/2014, and offers broad exposure to the Style Box - Large Cap Value category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
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.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
RDVY is managed by First Trust Advisors, and this fund has amassed over $8.32 billion, which makes it one of the larger ETFs in the Style Box - Large Cap Value. This particular fund, before fees and expenses, seeks to match the performance of the NASDAQ US Rising Dividend Achievers Index.
The NASDAQ US Rising Dividend Achievers Index is designed to provide access to a diversified portfolio of companies with a history of paying dividends.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.50% for RDVY, making it on par with most peer products in the space.
RDVY's 12-month trailing dividend yield is 1.58%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
RDVY's heaviest allocation is in the Financials sector, which is about 36.40% of the portfolio. Its Information Technology and Healthcare round out the top three.