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First Trust ETF Joins the Hunt for Foreign Dividends

FGD should yield 4.34% (4.94% index yield minus the 0.60% expense). The back test numbers are impressive, as they always are, for higher returns with less volatility than the broad market. The underlying index has averaged 25.17% annualized for five years.

Stocks in the fund meet several screens, including dividends paid being greater than or equal to the company's five-year average. Constituents must also satisfy stringent payout ratio and trading volume rules.

FGD strikes me as being well diversified compared to similar funds, so it might be less reactive -- though not immune -- to typical sector or single-country blowups.

The financial sector is on shaky ground, impacting the direction now. I think that will be the case until the entire yield curve normalizes. Its weight in the UK could also be a drag, as that economy is showing signs of weakening from its own exposure to the housing saga.

Of course, it is not realistic to expect any one product to be the best performer at all times and in all market situations. It makes more sense to expect that products might each take turns providing leadership. Depending on the investor, perhaps the exercise of evaluating these funds might be better thought of as avoiding the worst or most volatile one.

Near-term risks do not make the fund bad. The issue for anyone wanting a diversified portfolio using broad-based products is whether this could be the best exposure -- and, if it is, should it be underweighted or not?

For now, I would recommend underweighting. While it probably needs time to prove itself, I think FDL is unlikely to be the most volatile name in the space. I believe the iShares product, IDV, will continue to be the most volatile.

At the time of publication, one of Nusbaum's clients was long PID, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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