That is the case because the ETF, which has a 12-month distribution rate of 3.1%, allocates over 48% of its combined weight to the rate-sensitive utilities and telecom sectors. Two utilities and two telecom stocks are found among FVD’s top-10 holdings. In fairness to FDL, the ETF is up almost 2% in the past week despite the pop in 10-year yield.
Rising rates do not mean FDL will generate negative returns. The ETF rose nearly 23% last year even as 10-year yields surged. At issue is by how much do utilities-heavy dividend ETFs lag rivals that are not heavily exposed to that sector. The 2013 Treasury yield spike highlighted the vulnerabilities of dividend ETFs with large telecom and utilities allocations. [Some Dividend ETFs Exposed as Rates Rise]
FDL does allocate a combined 14% of its weight technology and industrial names, two of the better-performing sectors in rising rate environments. The ETF charges 0.45% per year.
First Trust Morningstar Dividend Leaders Index Fund
