First Trust: A Smart Beta Fund with a Strong Performance


Sep. 2 2015, Updated 11:01 a.m. ET

FVD seeks income and capital appreciation

The First Trust Value Line Dividend Index Fund (FVD) is smart beta fund. It seeks to replicate the performance of the Value Line Dividend Index. The underlying index is a modified dollar-weighted index. It has a unique stock selection process. It selects stocks that are listed only in the US, pay above average dividends, and have the potential for capital appreciation. All of the stocks in the index provider “value line” are given a safety ranking that measures the total risk of the stock relative to other stocks in the universe.

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Utilities form a major part

FVD invests more than 90% of its net assets in the components of its index. Sysco (SYY), Air Products and Chemicals (APD), Motorola Solutions (MSI), Airgas (ARG), and Ameren (AEE) are FVD’s top five holdings. The utility sector represents a major part of FVD’s portfolio. It represents almost 25%. Apart from utilities, it’s also diversified in different sectors like finance and consumer staples. Annually, the fund gave a return of 11.28% with an expense ratio of 0.73%. Currently, it manages net assets of $1.19 billion distributed over 186 securities.

AlphaDex Fund

A similar advanced beta fund is the First Trust Large Cap Core AlphaDEX Fund (FEX). Its index is the Defined Large Cap Core Index. It selects stocks on the basis of alpha. “Alpha” is the extra return generated over a specified benchmark. The fund’s portfolio consists of 376 stocks from the consumer discretionary, information technology, and healthcare sectors. The fund has given a return 1.29% since January 1, 2015. Its net expense ratio is 0.64%. It’s less than its peer because it’s a passively managed fund.

In the next part of this series, we’ll discuss the smart beta funds from FlexShares.


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