The First Trust Morningstar Dividend Leaders Index Fund ETF (FDL), an investment vehicle known for its focus on dividend-paying companies, has recently experienced a notable decline in performance relative to the broader S&P 500 index. This shift is primarily attributed to a strategic portfolio rebalancing that amplified its exposure to the energy and healthcare sectors. These sectors, unfortunately, are currently navigating a period of significant underperformance, which consequently impacts FDL's overall returns. While FDL maintains an attractive dividend yield, the increased concentration within its top holdings and the challenging outlook for its key sectors pose considerable risks, curtailing its potential for substantial capital appreciation. Consequently, market observers suggest that investors looking for more robust growth and better-aligned sector exposure might benefit from exploring alternative dividend-focused exchange-traded funds.
FDL's recent recalibration of its investment portfolio saw a marked increase in its allocation towards energy and healthcare. This move, intended to optimize its holdings, has instead become a drag on its performance. The energy sector has grappled with volatile commodity prices and shifting global demand, while healthcare has faced regulatory uncertainties and evolving market dynamics. These headwinds have translated into sluggish growth and, in some instances, capital depreciation for companies within these industries, directly affecting FDL's Net Asset Value (NAV).
A critical aspect of FDL's revised strategy is the high concentration within its top ten holdings, which now constitute approximately 55% of the total portfolio. Such high concentration inherently introduces greater risk and volatility. Should any of these prominent holdings falter, the impact on the entire fund would be magnified. This concentration, coupled with the tepid outlook for the energy and healthcare sectors, creates a challenging environment for FDL to generate competitive returns.
Despite these performance headwinds, FDL continues to offer a compelling dividend yield, currently standing at a robust 4%. This attractive yield, along with a track record of consistent dividend growth, appeals to income-seeking investors. However, the sluggish price momentum and the aforementioned sector-specific struggles cast a shadow over its total return potential. For investors prioritizing total return, the current market conditions necessitate a re-evaluation of FDL's role within their portfolios.
Given FDL's recent challenges, investors are advised to consider alternative dividend ETFs that offer more diversified sector exposure and have demonstrated superior performance in the current market climate. Options like FDVV and CGDV are cited as examples, showcasing better sector allocations that have enabled them to outperform the S&P 500 index in 2025. These alternatives may provide a more balanced risk-reward profile and greater potential for capital appreciation, aligning more closely with contemporary market trends and investor objectives.