For investors seeking broad exposure to the Large Cap Value segment of the US equity market, the First Trust Value Line Dividend ETF (FVD) presents a compelling option. Launched on August 19, 2003, and sponsored by First Trust Advisors, this passively managed exchange-traded fund has amassed over $9.72 billion in assets, solidifying its position as a significant player in the Large Cap Value ETF space.
Understanding Large Cap Value
Large cap companies, typically boasting a market capitalization exceeding $10 billion, are known for their stability. Their predictable cash flows and lower volatility compared to mid and small cap companies make them attractive investments. Value stocks, characterized by lower price-to-earnings and price-to-book ratios, often exhibit slower sales and earnings growth rates. Historically, value stocks have outperformed growth stocks in most market conditions, particularly over long investment horizons. However, growth stocks tend to outperform during periods of strong bull markets.
Cost Considerations
Expense ratios play a crucial role in an ETF’s return, particularly over the long term. Lower expense ratios can significantly enhance returns compared to their more expensive counterparts, assuming all other factors remain equal. FVD carries an annual operating expense ratio of 0.60%, positioning it among the higher-cost options in this segment. It boasts a 12-month trailing dividend yield of 2.12%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure to minimize single-stock risk, investors should still examine the fund’s holdings. FVD’s portfolio is heavily weighted towards the Industrials sector, accounting for approximately 19.50% of total assets. Utilities and Consumer Staples round out the top three sectors. In terms of individual holdings, Kellanova K holds the largest position, representing roughly 0.62% of total assets, followed by Erie Indemnity Company ERIE and Lockheed Martin Corporation LMT. The top 10 holdings collectively represent about 5.55% of total assets under management.
Performance and Risk
FVD aims to mirror the performance of the Value Line Dividend Index, a modified equal dollar weighted index comprised of US exchange-listed securities, before fees and expenses. The index focuses on companies paying above-average dividends with potential for capital appreciation. The ETF has generated an impressive 11.07% return year-to-date, and a 16.28% return over the past year (as of September 4, 2024). Over the last 52 weeks, it has traded between $36.09 and $44.80. FVD exhibits a beta of 0.79 and a standard deviation of 13.51% for the trailing three-year period, categorizing it as a medium-risk investment. With approximately 208 holdings, it effectively diversifies company-specific risk.
Alternatives and Conclusion
First Trust Value Line Dividend ETF receives a Zacks ETF Rank of 3 (Hold), based on factors like expected asset class return, expense ratio, and momentum. While FVD is a viable choice for investors seeking Large Cap Value exposure, other ETFs deserve consideration. The Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard Value ETF (VTV) track similar indexes. SCHD boasts $59.94 billion in assets, while VTV manages $123.92 billion. SCHD carries an expense ratio of 0.06%, whereas VTV charges 0.04%.
Passively managed ETFs, like FVD, have become increasingly popular among both retail and institutional investors. Their low costs, transparency, flexibility, and tax efficiency make them excellent vehicles for long-term investors. Before investing, it’s crucial to carefully consider your individual investment goals, risk tolerance, and financial situation.
