Is First Trust SMID Cap Rising Dividend Achievers ETF (SDVY) a Strong ETF Right Now?

The First Trust SMID Cap Rising Dividend Achievers ETF (SDVY) was launched on 11/01/2017, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Mid Cap Value category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is sponsored by First Trust Advisors. It has amassed assets over $899.11 million, making it one of the average sized ETFs in the Style Box - Mid Cap Value. This particular fund, before fees and expenses, seeks to match the performance of the NASDAQ US Small Mid Cap Rising Dividend Achievers Index.

The NASDAQ US Small Mid Cap Rising Dividend Achievers Index is composed of the securities of 100 small and mid-cap companies with a history of raising their dividends and exhibit the characteristics to continue to do so in the future.

Cost & Other Expenses

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 cousins, other things remaining the same.

With one of the most expensive products in the space, this ETF has annual operating expenses of 0.60%.

The fund has a 12-month trailing dividend yield of 1.73%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 31.50% of the portfolio. Consumer Discretionary and Industrials round out the top three.

Looking at individual holdings, Smith & Wesson Brands Inc. (SWBI) accounts for about 1.17% of total assets, followed by Dick's Sporting Goods, Inc. (DKS) and Tetra Tech, Inc. (TTEK).

Its top 10 holdings account for approximately 10.8% of SDVY's total assets under management.

Performance and Risk

So far this year, SDVY has lost about -16.67%, and is down about -13.76% in the last one year (as of 09/06/2022). During this past 52-week period, the fund has traded between $23.62 and $30.89.

The ETF has a beta of 1.17 and standard deviation of 31.06% for the trailing three-year period. With about 101 holdings, it effectively diversifies company-specific risk.

Alternatives

First Trust SMID Cap Rising Dividend Achievers ETF is a reasonable option for investors seeking to outperform the Style Box - Mid Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell MidCap Value ETF (IWS) tracks Russell MidCap Value Index and the Vanguard MidCap Value ETF (VOE) tracks CRSP U.S. Mid Cap Value Index. IShares Russell MidCap Value ETF has $12.83 billion in assets, Vanguard MidCap Value ETF has $15.60 billion. IWS has an expense ratio of 0.23% and VOE charges 0.07%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Mid Cap Value.

Bottom Line

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
First Trust SMID Cap Rising Dividend Achievers ETF (SDVY): ETF Research Reports
 
Tetra Tech, Inc. (TTEK) : Free Stock Analysis Report
 
DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report
 
Vanguard MidCap Value ETF (VOE): ETF Research Reports
 
iShares Russell MidCap Value ETF (IWS): ETF Research Reports
 
Smith & Wesson Brands, Inc. (SWBI) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research