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Looking for broad exposure to the Large Cap Value segment of the US equity market? You should consider the First Trust Morningstar Dividend Leaders ETF (FDL), a passively managed exchange traded fund launched on 03/09/2006.

The fund is sponsored by First Trust Advisors. It has amassed assets over $3.85 billion, making it one of the larger ETFs attempting to match the Large Cap Value segment of the US equity market.

Why Large Cap Value

Large cap companies usually have a market capitalization above $10 billion. Overall, they are usually a stable option, with less risk and more sure-fire cash flows than mid and small cap companies.

Value stocks have lower than average price-to-earnings and price-to-book ratios. They also have lower than average sales and earnings growth rates. When you look at long-term performance, value stocks have outperformed growth stocks in nearly all markets. But in strong bull markets, growth stocks are more likely to be winners.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.45%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 4.49%.

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.

This ETF has heaviest allocation to the Financials sector--about 22.50% of the portfolio. Energy and Healthcare round out the top three.

Looking at individual holdings, Chevron Corporation (CVX) accounts for about 9.83% of total assets, followed by Verizon Communications Inc. (VZ) and Abbvie Inc. (ABBV).

The top 10 holdings account for about 60.4% of total assets under management.

Performance and Risk

FDL seeks to match the performance of the Morningstar Dividend Leaders Index before fees and expenses. The Morningstar Dividend Leaders Index consists of stocks listed on one of the three major exchanges, NYSE, NYSE Amex or Nasdaq, that have shown dividend consistency and dividend sustainability.

The ETF return is roughly 7.55% so far this year and is up about 16.25% in the last one year (as of 07/10/2024). In the past 52-week period, it has traded between $31.58 and $39.01.

The ETF has a beta of 0.88 and standard deviation of 14.81% for the trailing three-year period, making it a medium risk choice in the space. With about 91 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust Morningstar Dividend Leaders ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FDL is an excellent option for investors seeking exposure to the Style Box - Large Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.

The iShares Russell 1000 Value ETF (IWD) and the Vanguard Value ETF (VTV) track a similar index. While iShares Russell 1000 Value ETF has $55.65 billion in assets, Vanguard Value ETF has $115.99 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.

Bottom-Line

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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First Trust Morningstar Dividend Leaders ETF (FDL): ETF Research Reports

Chevron Corporation (CVX) : Free Stock Analysis Report

Verizon Communications Inc. (VZ) : Free Stock Analysis Report

AbbVie Inc. (ABBV) : Free Stock Analysis Report

Vanguard Value ETF (VTV): ETF Research Reports

iShares Russell 1000 Value ETF (IWD): ETF Research Reports

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.