The First Trust Dividend Strength ETF (FTDS) has undergone a fundamental transformation, signaling a complete departure from its previous investment strategy. Investors are now presented with a fund that prioritizes specific quality metrics over broad market exposure, marking a significant shift in its underlying concept.
A New Core Philosophy
Previously, the ETF employed a quantitative, factor-based methodology known as AlphaDEX. This approach aimed to outperform traditional market-cap-weighted indices by screening stocks for a combination of growth and value factors, including price appreciation, sales growth, and book value-to-price ratios. That
The fund now tracks the Dividend Strength Index, concentrating its holdings on approximately 50 U.S. corporations and Real Estate Investment Trusts (REITs) with a demonstrated history of increasing dividend payments. This represents a move from wide diversification to a more targeted selection process.
Rigorous Criteria for Portfolio Inclusion
The selection process for the new index is governed by strict fundamental rules designed to identify high-quality dividend payers. To be considered, a company must meet several key benchmarks:
* A return on equity exceeding 10%.
* A debt level that constitutes less than 40% of its market capitalization.
* A sustainable dividend growth rate of at least 5% annually over the past five years.
* A payout ratio below 50%.
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These filters are intended to ensure the portfolio consists of financially robust companies with ample capacity for future dividend increases. The index is reconstituted and rebalanced quarterly, which may lead to periodic shifts in its sector allocation.
Positioning and Alternatives
With a total expense ratio of 0.70%, the ETF is positioned within the rules-based strategic fund segment. For investors who still seek exposure to the original AlphaDEX methodology across various market segments, alternative products from the same provider, such as specialized sector funds for technology or large-cap stocks, remain available.
The upcoming quarterly rebalancing will serve as a test for the stability of the current 50 holdings, reflecting prevailing dividend trends in the U.S. market. Adherence to the stringent debt and payout rules continues to be the paramount indicator of the portfolio’s long-term quality.
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