“The factors provide high intended exposure and low unintended exposure,” Nielson said. “You buy what you want.”
For example, Fidelity’s suite of single-factor ETFs focus on a single intended exposure. FDLO covers 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.
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.
FDVV is designed to reflect the performance of stocks of large- and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends.
These single factors, which were traditionally found on the actively managed side of Fidelity’s business, have now been imported into its ETF business, providing investors with exposure to Fidelity’s intellectual property or research in a passive, low-cost fund wrapper.
“The factor ETFs are active by design, passive by implementation,” Nielson added.