FGD: A High Yield, Two Problems

Summary

  • FGD strategy and portfolio.
  • Past performance and competitors.
  • Takeaway.
  • Looking for a helping hand in the market? Members of Quantitative Risk & Value get exclusive ideas and guidance to navigate any climate. Learn More »

La mano del niño y la evaluación de 5 estrellas

takasuu/iStock via Getty Images

This dividend ETF review series aims at evaluating products regarding their past performance and their current portfolio quality.

FGD strategy and portfolio

The First Trust Dow Jones Global Select Dividend ETF (NYSEARCA:FGD) has been tracking the Dow Jones Global Select Dividend Index since 11/21/2007. As of writing, it has a 100-stock portfolio, an SEC yield of 4.34% and a total expense ratio of 0.57%. As described by S&P Dow Jones Indices, the underlying index selects companies listed in developed markets, excluding REITs, with:

  • Dividends paid in each of the past five years.
  • A dividend per share greater than or equal to its five-year average.
  • A five-year average dividend coverage ratio greater than or equal to 167% for U.S. and European companies, or 125% for other countries.
  • Positive trailing twelve month EPS.
  • A float-adjusted market capitalization of at least $ 1 billion ($ 750 million for current constituents).
  • A minimum average daily trading volume of $ 3 million.

Initially, the top 100 companies passing the rules ranked on higher IAD yield were included in the index. At every reconstitution, existing constituents stay in the index if they are ranked in the top 200. Excluded stocks are replaced with new constituents based on their rankings until the count reaches 100.

Constituents are weighted based on IAD yields. The index is rebalanced annually. Weight limits are checked quarterly and enforced when necessary.

Financials represent over 45% of the portfolio. No other sector weighs more than 12%.

FGD sectors weights. Chart: author with Fidelity's data.

The top three countries represented in the portfolio are the U.S., Canada and South Korea (about 12% to 16% each). Other countries' weights are below or equal to 10%. The next chart lists the top ten countries, for an aggregate weight of 86%.

FGD countries weights. Chart: author with Fidelity's data.

In terms of size, 48% is in large companies, 38% is in mid caps and 14% is in small or micro caps.

FGD market cap segments. Chart: author with Fidelity's data.

The top 15 holdings listed below represent almost 22% of the portfolio in aggregate weight.

Name

Weight%

Enagas SA

1.75%

Telefonica SA

1.68%

Labrador Iron Ore Royalty Corporation

1.64%

MERITZ SECURITIES CO LTD

1.62%

Industrial Bank Of Korea

1.55%

Red Electrica Corp. SA

1.48%

Mapfre SA

1.46%

Shaw Communications Inc. Class B

1.43%

British American Tobacco p.l.c.

1.40%

Compania de Distribucion Integral Logista Holdings S.A.

1.39%

Woori Financial Group, Inc.

1.38%

Plus500 Ltd.

1.37%

IGM Financial Inc.

1.32%

UnipolSai Assicurazioni S.p.A.

1.30%

Altria Group Inc

1.30%

Past performance compared to competitors

FGD has a loose dividend growth rule based on the 5-year average yield, but it is more focused on higher yields. The next table compares the fund's performance and risk metrics with a pure dividend growth ETF, the Vanguard International Dividend Appreciation ETF (VIGI), since VIGI inception in February 2016. VIGI has a lower yield (about 1.5%), but beats FGD by a significant margin in total return. The difference in annualized return is about 2.6 percentage points, and FGD shows a higher risk measured in drawdown and volatility. VIGI is a clear winner in risk-adjusted return (Sharpe ratio).

Since Feb. 2016

Total Return

Annual Return

Drawdown

Sharpe ratio

Volatility

VIGI

81.50%

11.21%

-31.01%

0.83

12.87%

FGD

59.13%

8.63%

-44.84%

0.5

18.23%

Data calculated with Portfolio123

It may be more relevant to compare FGD with the SPDR S&P Global Dividend ETF (WDIV), which is one of its closest competitors in the same yield range (4-5%) with a different index (S&P Global Dividend Aristocrats). Due to WDIV inception date, the table below gives numbers from June 2013. On this eight-year period, there is no significant difference between the two products.

Since June 2013

Total Return

Annual Return

Drawdown

Sharpe ratio

Volatility

FGD

63.09%

6.04%

-44.84%

0.41

16.65%

WDIV

62.16%

5.97%

-42.35%

0.41

15.20%

Data calculated with Portfolio123

The annualized total return of FGD and WDIV is less than 2% above their dividend yields, which means the capital invested in these ETFs has hardly kept up with inflation in eight years. The S&P 500 has gained about +200% in the same time.

Takeaway

FGD holds 100 international stocks with a focus on high yields and a loose dividend growth filter. It is invested exclusively in developed countries (about 30% in North America). However, it may have a small exposure to regulatory and geopolitical risks related to China in the 7% weight of Hong Kong listed companies. Financials weigh over 45% of asset value, which may be a bad point or a good one depending on what you are looking for.

The fund has lagged an international dividend growth benchmark since 2016 (VIGI, reviewed here), but it is on par with its closest competitor since 2013. FGD is not the worst high-yield international equity ETF out there: it looks much better than SDIV (reviewed here). However, I don't find it attractive. My two main points of concern are its concentration in financials and its flattish inflation-adjusted asset value in a strong bull market since 2013.

For transparency, a dividend-oriented part of my equity investments is split between a passive ETF allocation and my actively managed Stability portfolio (14 stocks), disclosed and updated in Quantitative Risk & Value.

My model portfolio of high quality dividend stocks is designed to beat dividend ETFs. QRV Members get timely updates paired with risk indicators. Get started with a two-week free trial now. 

This article was written by

Fred Piard profile picture
14.42K Followers
Data-driven portfolios and risk indicators.
Author of Quantitative Risk & Value and three books, I have been investing in systematic strategies since 2010. I have a PhD in computer science, an MSc in software engineering, an MSc in civil engineering and 30 years of professional experience in various sectors. My aim is making simple and efficient quantitative investing techniques available to my followers. Quantitative models can make investment decisions faster, reproducible and emotionless by focusing on relevant information in the middle of market noise. Moreover, models can be refined to meet specific risk tolerance and objectives. 

Step up your investing experience: try Quantitative Risk & Value for free now (limited offer).

I am an individual investor and an IT professional, not a finance professional. My writings are data analysis and opinions, not investment advice. They may contain inaccurate information, despite all the effort I put in them. Readers are responsible for all consequences of using information included in my work, and are encouraged to do their own research from various sources.

Disclosure: I/we have a beneficial long position in the shares of VIGI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (3)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.