As the economy continues to expand, with shifting fiscal and monetary policies, ETF investors may look to Fidelity’s tested management styles and fundamental strategies to potentially enhance returns and limit risks.
“We’re more traditionally known as a fundamental investment shop,” Darby Nielson, Managing Director of Research for Fidelity Institutional Asset Management, said at the recent Morningstar ETF Conference. “Factors have been integrated in our active investment process for many, many years now.
“Over the years, we’ve built a 3,000 factor library with built models for all of our portfolio managers, and all that has been a collaboration,” Nielson added.
Their factor models try achieve three things the management teams want to achieve, which include targeted exposure for the factor, reduced unintended risks and competitive performance.
Investors can turn to factor-based investment strategies and ETFs as a way to better manage risks and capture market moves. The factor-based ETFs may help investors seek out factor exposures for return/outcome potential and risk management.
For example, investors can look to Fidelity’s line of factor based ETFs, including Fidelity Dividend ETF for Rising Rates (NYSEArca: FDRR), Fidelity Low Volatility Factor ETF (NYSEArca: FDLO), Fidelity Momentum Factor ETF (NYSEArca: FDMO), Fidelity Quality Factor ETF (NYSEArca: FQAL), Fidelity Value Factor ETF (NYSEArca: FVAL) and Fidelity Core Dividend ETF (NYSEArca: FDVV).
The line of Fidelity factor based ETFs can help investors achieve strategic and cyclical exposure, along with filling out an investment portfolio construction. By incorporating the various factor based ETFs into an investment portfolio, investors may be better able to diminish risks and still capture any upside potential.
Among the various factor picks, dividends have been a focal point for many investors, especially in an extended low-rate environment, but with the Federal Reserve eyeing higher rates ahead, investors have been rethinking their positions. Nevertheless, Fidelity offers a dividend ETF strategy that may also better navigate a rising rate environment.
“Advisors are really gravitating toward the dividend suite that Darby’s felt out, and if look back in history, we’ve had dividend ETF in the market for over 15 years, but the majority of them are concentrated,” Matt Goulet, V.P. of Sector & ETF Investment Strategy for Fidelity Institutional Asset Management, said. “Looking at individual stock and how many years they’ve increased dividends – whether it’s 5 years or 10 years or 20 years, we took a little bit of a different approach. We started with yield, which is what the advisors are really looking for, and then built the methodology around the yield of the underlying portfolios.
“On top of that, we did dividend ETF for rising rates, so we recognize that most people are concerned buying dividend stocks in a rising rate environment,” Goulet said.
FDRR’s main selling point is the ETF’s specific screens towards companies that perform well during rising interest rate environments. Consequently, in periods of rising rates, FDRR is neutral to stocks compared to other dividend ETFs that may weaken, essentially doing well on rising days and holding up on down slides to help investors generate improved risk-adjusted returns over the long haul. The ETF’s additional focus on dividend growers may also help the portfolio perform during the period ahead as dividend growth stocks typically do well in rising rate environments.
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