The much maligned value factor may once again have its day and investors might want to consider adding active management to the mix in search of potential value out-performance. The Fidelity Blue Chip Value ETF (FBCV) can help with that objective.
FBCV is one of the initial trio of active non-transparent ETFs (ANTs) Fidelity launched three months, bringing the cache of one of the largest mutual and index fund issuers to this nifty new fund structure.
FBCV will normally invest primarily in equity securities of companies that the Adviser believes are undervalued in the marketplace in relation to factors such as assets, sales, earnings, growth potential, or cash flow, or in relation to securities of other companies in the same industry (stocks of these companies are often called “value” stocks). The Adviser normally invests at least 80% of the fund’s assets in blue chip companies (companies that, in FMR’s view, are well-known, well-established and well-capitalized), which generally have large or medium market capitalizations.
Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades.
What makes FBCV, the Fidelity ANT, relevant today is that approaches to value are changing. Additionally, as an actively managed product, FBCV can skirt lagging sectors, such as energy and financial services, that are often hallmarks of index-based value strategies.
Differences between ANTs relative to basic ETFs ETFs may also have advantages. By keeping certain information about the ETF secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance.
Growth stocks may be seen as exorbitant and overvalued, causing some investors to favor value stocks, which are considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.
For more on active strategies, visit our Active ETFs Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.