ETF 360: Fidelity Enters the Ring with Enhanced ETFs

The latest ETF 360 features Fidelity’s Mike Hagopian in conversation with VettaFi’s Head of Research Todd Rosenbluth about the new Fidelity Enhanced ETF suite.

These ETFs are designed to give investors core equity exposure. “Our team has had a lot of experience managing these types of strategies, dating back to 2007,” Hagopian said. “We’re excited to be able to offer these now in an ETF format.”

Incorporating Active Management

Hagopian noted that these core equity ETFs incorporate active management in a disciplined, risk-managed investment process. These strategies are engineered by the team’s long-term views about what drives equity outperformance. “This is a systematic process that we’ve developed,” he noted

Asked what sets the enhanced ETF apart from multifactor index-based products, Hagopian said, “The factors we utilize, the way that we’re weighting those factors, and the risk management portfolio framework that we’ve developed.” He shared that Fidelity uses different ways to define factors and the data it is using. “We’re also incorporating nontraditional factors – so data sources not found on financial statements,” Hagopian added.

Hagopian on the Risk Management Approach

Additionally, Fidelity is taking a protective approach to risk management. Speaking about the risk management in these funds, Hagopian said, “I equate our portfolio to being in a boxing match but we get to keep our headgear on.” He noted that even if these funds “take a punch,” they won’t get knocked out.

Can’t Hardly Equal-Weight

Hagopian said that, aside from its unique and robust approach to factors, Fidelity is also taking a novel approach to weighting. “It’s not just simply equal weighting but looking over long-term perspective over those return drivers, those characteristics,” he explained. “What’s the return look like? What’s the risk associated with that return? How is that driver correlated to other things we’re using?” Accordingly, factors that have stronger risk-adjusted returns will have higher weight.

Fidelity Creates Unique Approach to Core Exposure in Its Enhanced Suite

The suite of six ETFs includes four mutual fund conversion. “The strategies are now available as a low-cost solution and have the added tax efficiency that comes with this wrapper.”

The suite includes the Fidelity Enhanced Large Cap Core ETF (FELC) and the Fidelity Enhanced Small Cap ETF (FESM). FELC tracks the S&P 500, while FESM tracks the Russell 2000.

To watch past episodes of ETF 360, visit the ETF 360 Channel