If the market narrative in 2023 focused heavily on the so-called “Magnificent Seven,” then where does the story turn in 2024? Midcap firms may now be taking center stage given they’ve had appealing valuations. At the same time, should the Fed cut interest rates, that could also potentially boost midcap firms and make 2024 an interesting entry point. An active mid cap ETF like FMDE, then, could present a strong route into the space.
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FMDE, the Fidelity Enhanced Mid Cap ETF, actively invests in midcap firms. The strategy charges 23 bps for its approach, having converted from a mutual fund to the ETF structure in November last year. Specifically, it looks for U.S.-based midcap firms within the Russell Midcap Index.
FMDE looks to provide total return that outdoes that index, using a quantitative analysis evaluating growth, profitability, and historical valuation. That approach has helped FMDE return 13.1% over last three months as of March 14th. That total outperforms both its ETF Database Category and Factset Segment averages.
So what, then, is the case for midcaps, more specifically? Midcaps may offer diversification, of course, to a large cap-dominated U.S. market. At the same time, their valuations could potentially be seen as appealing. As of March 14th, the S&P 400 Mid Cap Index’s p/e ratio sat at 19.18 per Bloomberg compared to 23.27 for the S&P 500 per YCharts.
That gap means that investors may be able to find appealing opportunities at a reasonable valuation in midcaps. An active mid cap ETF like FMDE, then, could appeal. FMDE deploys a disciplined, active investment approach to identifying stocks, while still providing core equity exposure similar to the index. The team systematically identifies stocks with attractive characteristics by leveraging Fidelity’s proprietary view on quality, growth, valuation, and momentum in addition to some non-traditional factors, all of which help set it apart.
See more: Beyond Index Investing
Should rate cuts hit, even two to three, an active strategy could find the midcaps positioned to potentially benefit. Whereas a passive indexed approach to midcaps sticks to those within the benchmark, an active midcap ETF like FMDE can adapt and seek different options. A hands-on approach could be helpful to the ETF’s shareholders.
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