A strong management team and sound investment process underpin Fidelity Enhanced Small Cap ETF's Morningstar Medalist Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The longest-tenured portfolio manager's extensive experience drives the strategy's High People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in volatility exposure and quality exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Super Micro Computer

Abercrombie & Fitch

Fabrinet

Carvana

MicroStrategy Incorporated

Matador Resources

Applied Industrial Technologies

SPS Commerce

Carpenter Technology

Murphy Oil

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Fidelity Enhanced Small Cap ETF earns an Above Average Process Pillar rating. 

The leading factor in the rating is the parent firm's five-year risk-adjusted success ratio of 66%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent firm's excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also influences the rating. Lastly, the process is limited by the parent firm's five-year retention rate of 73%, which suggests it could do more to retain its portfolio managers.

 This strategy targets smaller plays than its peers’ average in the Small Blend Morningstar Category. But in terms of investment style, it is on par with peers. Analyzing additional factors, the managers have continually shown a willingness to take risks over the last few years, demonstrated by the portfolio's high volatility exposure. Such exposure tends to pay off when markets are hot and to be costly when they are not. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. This strategy has also favored low-quality stocks. This means the fund avoids holding companies that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Given the high trading volume of holdings, this fund also holds highly liquid assets. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In this month, the strategy also had more exposure to the Liquidity factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in technology by 3.6 percentage points in terms of assets compared with the category average, and its healthcare allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and financial services; however, the allocations are similar to the category. The portfolio is composed of 561 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 9.1% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 24.4% average. And in closing, in terms of portfolio turnover, this portfolio's holdings turn over more often than comparable products in its peer group, possibly resulting in higher costs for investors and a drag on performance.

Above Average

Process

Fidelity Enhanced Small Cap ETF earns a High People Pillar rating. The most significant contributor to the rating is its parent firm's five-year success ratio of 64%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The combined average five-year excess return of each manager also influences the rating. It implies that the funds they manage have outperformed the average manager. Management team experience, which averages 19 years at this fund, supports the rating as well.


None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

High

People

Fidelity earns an Above Average Parent rating because of its ability to stay ahead of its competition.

The firm's successful stock-picking mutual funds fueled its rise to prominence, and it has adapted well to investor preferences that have shifted markedly over the past two decades. Index funds and exchange-traded funds have garnered most of the industry's flows as money has gushed from actively managed products—Fidelity's included. Yet overall, the asset-management division has continued to achieve positive organic growth by introducing or maintaining aggressive pricing on its own suite of passively managed funds and expanding its menu of client-demanded investment structures, such as managed accounts and collective investment trusts. These moves are made possible by the firm's strong distribution network, scale, established brand, and willingness to tolerate losses on some products in pursuit of broader strategic objectives.

The firm is not without blemishes. It could stand to rationalize its lineup of active equity funds and do better to maintain continuity in an equity fund's portfolio construction as the fund's leadership inevitably changes.

Overall, the firm has served its funds' investors well. It boasts a topnotch fixed-income division and remains home to some of the industry's most talented equity managers and a strong team supporting its well-run target-date series.

Parent

Fidelity Enhanced Small Cap Etf

FESM is an actively managed fund that invests in US, small-cap companies. Stock selection is based on computer-aided analysis, which chooses stocks belonging to the Russel 2000 Index.

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News for Fidelity Enhanced Small Cap Etf ETF (FESM)