This Dividend ETF Soars...For A Price
Fees are not everything when it comes to exchange traded funds. Yes, it is possible for investors find excellent, long-term returns with ETFs that feature above-average fees. Likewise, not all low-fee ETFs merit investors' attention.
Still, lower fees remain one of the biggest reasons why scores of advisors and investors are dropping high-priced, underperforming actively managed mutual funds. However, some ETFs are pricey and that is not always a good thing. The First Trust Value Line Dividend Index Fund (NYSE: FVD) is an example of that theme.
FVD was one of 30 ETFs to hit an all-time high last Friday and one of a dozen dividend ETFs to accomplish that feat. FVD is also the most expensive of those dividend ETFs by a wide margin. The First Trust offering charges 0.7 percent per year, or $70 for every $10,000 invested.
Sure, dividend ETFs usually carry higher expense ratios than ETFs tracking standard broad market indexes such as the S&P 500 or the Russell 1000, but 0.7 percent a year is pricy even by the standards of dividend ETFs. Actually, FVD's annual fee is rich by the standards of all ETFs. Research for this piece turned up several different numbers for the average annual fee for ETFs, but all the figures discovered were less than 0.45 percent.
So even when calling the average annual expense ratio on U.S. ETF 0.45 percent, FVD is more than 50 percent more expensive.
FVD allocates 24.1 percent of its weight to utilities stocks, helping explain why the ETF is up 11.5 percent, but investors looking for a dividend ETF with big utilities can save some money with the iShares Select Dividend ETF (NYSE: DVY). DVY devotes 31.3 percent of its weight to utilities stocks, one of the largest such allocations among all U.S. dividend ETFs. Over the past five years, DVY and FVD have each returned about 87 percent, but DVY charges just 0.39 percent per year.
Interestingly, there are some comparisons that show FVD justifies its higher fee. For example, the First Trust ETF has topped the Vanguard High Dividend Yield ETF (NYSE: VYM) by nearly 900 basis points over the past three years. One reason VYM is popular is its 0.09 percent expense ratio that makes it less expensive than 92 percent of rival funds.
VYM has $13.4 billion in assets under management compared to $1.88 billion for FVD.
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