First Trust planning changes to US dividend ETF

Sep 15th, 2017 | By | Category: Equities

First Trust Portfolios Canada is planning to change the name and underlying index of the First Trust AlphaDEX US Dividend ETF (CAD-Hedged) (TSX: FUD), a fund which gives investors exposure to US large-cap equities that pay higher-than-average dividends.

First Trust planning changes to US dividend ETF

The fund will still provide exposure to high-dividend-paying US equity, but the index will change from an AlphaDEX methodology to one provided by Value Line.

The $8 million fund, which was launched in May 2015, is due to change its name to the First Trust Value Line Dividend Index (CAD Hedged) and will track the Value Line Dividend Index with currency hedging between the USD and CAD.

First Trust claims the index switch should provide investors with greater downside protection and a broader investment universe.

The ETF currently tracks the AlphaDEX US Dividend Index which uses a rules-based methodology to select 60 stocks using a range of value and growth factors.

The new index methodology begins with the universe of stocks that Value Line, an investment research firm based in New York, gives a safety rating of 1 or 2. These stocks are considered safer, less risky and more stable compared to the broad market. From those stocks, the index is made up of companies with a market capitalisation of over $1 billion that have a dividend yield higher than the S&P 500 Index. There are currently 201 constituents in the index, which are equally weighted and rebalanced monthly.

The largest sector exposures in the old index are consumer discretionary (17.0%), financials (14.0%) and utilities (13.1%). After the index swap, the portfolio will display a slightly higher sector concentration, with the largest exposures being utilities (22.3%), financials (17.6%) and consumer staples (14.5%).

In a move that appears out of step with the prevailing trends in the ETF industry, the cost of the fund is due to rise from 0.66% to 0.70% when the name and index change takes effect. In a press release First Trust stated that the change in management fee was “reasonable in that it is the same as the management fee charged to First Trust Value Line Dividend Index Fund (FVD)” FVD is a US-listed ETF which tracks the same Value Line Dividend Index.

Investors looking for similar ETFs could try the iShares US High Dividend Equity Index ETF (CAD-Hedged) (TSX: XHD), which was launched in August 2012 and has assets of CAD 19m with a management expense ratio of 0.66%.

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