Leveraging its research capabilities and perch as a dominant issuer of actively managed mutual funds, Fidelity entered the smart beta arena Thursday with the debuts of six exchange-traded funds. Smart or strategic funds are one of the fastest-growing segments of the ETF industry and for several years have posted asset growth above that of the broader industry.
Fidelity's new smart beta ETFs are the Fidelity Core Dividend ETF FDVV, Fidelity Dividend ETF for Rising Rates FDRR, Fidelity Low Volatility Factor ETF FDLO, Fidelity Momentum Factor ETF FDMO, Fidelity Quality Factor ETF FQAL, and the Fidelity Value Factor ETF FVAL.
“Fidelity’s six new ETFs, which will track proprietary indices, combine the company’s legacy of fundamental research with factor-based insights by our team of quantitative research analysts, while also leveraging Fidelity’s expertise and scale in managing index-based portfolios that are designed to provide customers with an outcome-oriented portfolio diversifier using a rules-based approach,” said Boston-based Fidelity in a statement.
Core Dividend ETF
The FDVV tracks the Fidelity Core Dividend Index, a benchmark designed to give investors exposure to steady dividend growers from the large- and mid-cap segments. Consumer discretionary, energy and financial services names combine for half the ETF's weight.
FDRR, the dividend ETF designed for rising interest rates, follows the Fidelity Dividend Index for Rising Rates. That index “designed to reflect the performance of stocks of large- and mid-cap dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields,” according to Fidelity.
Low Volatility ETF
The FDLO, highlighted here earlier this week, follows the Fidelity U.S. Low Volatility Factor Index. At the end of August, the Fidelity U.S. Low Volatility Factor index had a 3.4 percent utilities weight. That is low compared to the established names among large-cap, low volatility ETFs.
The FDMO is linked to the Fidelity U.S. Momentum Factor Index, which holds large and mid caps displaying favorable momentum traits. Technology and healthcare names combine for about 36 percent of that new ETF's weight.
FQAL, Fidelity's new quality factor ETF, follows the Fidelity U.S. Quality Factor Index. That index holds companies “with a higher quality profile than the broader market. The index consists of stocks of companies with historically high free–cash-flow margins, high returns on invested capital and high-free-cash flow stability,” said Fidelity.
Finally, the FVAL tracks the Fidelity U.S. Value Factor Index. FVAL allocates nearly 21 percent of its weight to technology stocks. That is a departure from standard value ETFs, which usually feature energy or financial services as their top sector weights.
All of Fidelity's new ETFs charge 0.29 percent per year, which is inexpensive relative to the industry average for smart beta funds.
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