Fidelity Investments is expanding its reach into smart-beta exchange traded funds to help address investors’ growing desire for active styled strategies that come in an affordable and efficient ETF wrapper.
Fidelity plans to launch six new factor-based, smart-beta ETFs on or about Thursday, September 15, including 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 Fidelity Value Factor ETF (FVAL).
“The new factor ETFs are active by design, passive by implementation,” Anthony Rochte, president of SelectCo, the company’s dedicated sector investing and ETF services division, told ETF Trends at the Morningstar ETF conference in Chicago.
Fidelity services over 25 million investors on its brokerage account. These products were designed to cater toward these investors’ growing desire for targeted investment strategies that implement popular actively managed styles.
“The ETFs are based on academically sound factors that have delivered over time,” Joe Desantis, chief investment officer in Fidelity’s Equity division, told ETF Trends.
The factor-based ETFs also incorporate Fidelity’s proven research capabilities and experience in a passive, index-based fund wrapper.
“For nearly a decade, Fidelity’s quantitative research team has been working collaboratively with our portfolio managers and fundamental analysts to develop factor models that incorporate what we believe are the best stock drivers from both fundamental and quantitative perspectives,” Desantis said. “We are now making this expertise available directly to our customers through our new ETFs.”
Fidelity’s new group of smart-beta ETFs will each target a specific factor to help bolster a portfolios risk-adjusted returns.
“We think the factors can enhance portfolio returns and protect on the downside,” Desantis said.
Specifically, FDVV will target large- and mid-cap dividend-paying stocks that are expected to continue to pay and grow their dividends. Component holdings have shown historically high dividend yields, low dividend payout ratios and high dividend growth.
FDRR will track large- and mid-cap dividend-paying companies expected to continue to pay and grow dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields. Underlying stocks can include those with historically high dividend yields, low dividend payout ratios, high dividend growth, and a positive correlation of returns to rising 10-year U.S. Treasury bond yields.
[related_stories]FDLO will cover large- and mid-cap U.S. companies that exhibit lower volatility than the broader market. Holdings include those that show historically low volatility of returns, low beta (a measure of market sensitivity) and low earnings volatility.
FDMO includes large- and mid-cap U.S. companies that exhibit positive momentum signals. Companies include those with historically high total and volatility-adjusted returns, high positive earnings surprises and low average short interest.
FQAL follows large- and mid-cap U.S. companies with higher quality profiles than the broader market. The underlying index focuses on companies with historically high free–cash-flow margins, high returns on invested capital and high-free-cash flow stability.
Lastly, FVAL covers large- and mid-cap U.S. companies that have attractive valuations. Components exhibit historically high free-cash-flow yields, low enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization), low price to tangible book value and low price to future earnings.
The six new smart-beta ETFs are also competitively priced, each showing a total expense ratio of just 0.29%, or cheaper than 80% of Morningstar’s smart-beta peer group. Moreover, once the six new ETFs hit the market September 15, investors who are utilizing the Fidelity brokerage platform will have 91 commission-free ETFs at their disposal – the commission-free ETFs include Fidelity’s full line, along with 70 iShares offerings.
For more information on new fund products, visit our new ETFs category.