Hoping that seven is a lucky number, First Trust Advisors unveiled its take on the dividend exchange-traded fund. The First Trust Morningstar Dividend Leaders Fund – a marriage of Chicago-area firms – seeks to differentiate itself from the six existing dividend ETFs by focusing on stocks with a history of dividend growth and its modified market-capitalization weighting. The fund, and options on it, began trading yesterday on the American Stock Exchange.
The new ETF, First Trust's second, tracks the Morningstar Dividend Leaders Index. "We use forward-looking earnings estimates to make sure a company doesn't overreach or have to cut the dividend," Morningstar's Sanjay Arya said. The index holds only 100 stocks, selected through a five-step process devised by the ratings agency, which screens for positive 5-year dividend growth rates and a coverage ratio higher than one. In addition, its modified cap weight – designed to produce lower turnover than rival indices, roughly 25% to 35%, rebalanced quarterly – is designed to ensure that shares are readily available, though individual names are capped at 10%, and individual industries at 30%.
Cliff Weber, senior v.p. of the Amex ETF marketplace, is confident that profile will help it stand out in the crowded dividend ETF field, calling it a "new and different approach." Aiming for a piece of the $7.1 billion dividend ETF market – $6.4 billion of which is in Barclays Global Investors' iShares Dow Jones Select Dividend Fund – First Trust's Scott Hall says, "The underlying index is a departure from the typical 'just deliver dividend' approach to many current dividend funds." He adds that the Morningstar index places a premium on "dividend consistency and sustainability."
The new ETF, First Trust's second, tracks the Morningstar Dividend Leaders Index. "We use forward-looking earnings estimates to make sure a company doesn't overreach or have to cut the dividend," Morningstar's Sanjay Arya said. The index holds only 100 stocks, selected through a five-step process devised by the ratings agency, which screens for positive 5-year dividend growth rates and a coverage ratio higher than one. In addition, its modified cap weight – designed to produce lower turnover than rival indices, roughly 25% to 35%, rebalanced quarterly – is designed to ensure that shares are readily available, though individual names are capped at 10%, and individual industries at 30%.
Cliff Weber, senior v.p. of the Amex ETF marketplace, is confident that profile will help it stand out in the crowded dividend ETF field, calling it a "new and different approach." Aiming for a piece of the $7.1 billion dividend ETF market – $6.4 billion of which is in Barclays Global Investors' iShares Dow Jones Select Dividend Fund – First Trust's Scott Hall says, "The underlying index is a departure from the typical 'just deliver dividend' approach to many current dividend funds." He adds that the Morningstar index places a premium on "dividend consistency and sustainability."
