For some, Fidelity is synonymous with active management. In many ways, the Boston-based fund giant still is, but Fidelity also is a credible exchange-traded funds player. It was late to expand into ETFs, letting one lone fund sit around for years without any stablemates.
However, that changed three years ago when Fidelity introduced 10 sector ETFs. That number has since grown to 11 with the addition of a real estate fund.
Speaking to Fidelity’s growing emphasis on ETFs, the issuer pared fees on its sector ETFs earlier this year. So, believe it or not, Fidelity funds are the least expensive sector funds on the market.
Yes, even cheaper than Vanguard — at least for the moment.
Fidelity ETFs grew in a big way earlier this month when the firm introduced six smart offerings. The move makes sense for Fidelity because smart beta blurs the line between active and passive management, meaning these new funds leverage the firm’s active expertise with the advantages of ETFs.
One of those advantages is low fees. Each of the new Fidelity ETFs charges just 0.29% per year, or $29 on a $10,000 investment. Compared to average ETFs, smart-beta strategies and, of course, actively managed mutual funds, 0.29% per year is a cost-effective fee.
Today, we’ll focus on three of the funds, including two dividend ETFs.
Great Fidelity ETFs: Fidelity Low Volatility Factor ETF (FDLO)
Though it is not short on critics, low-volatility investing by way of the ETF wrapper has been popular (and rewarding) this year. So while this fund is entering a proven field, it is also entering a field with plenty of competition.
The recipe for success when entering a crowded segment is to stand out in a good way, and Fidelity Low Volatility Factor ETF (NYSEARCA:FDLO) does that.
Not to be trite, but FDLO is not your grandfather’s low-volatility ETF. It probably isn’t your dad’s either.
“Old school” low-volatility funds are, in most cases, marked by large weights to consumer staples, utilities stocks, or both. FDLO allocates just 3.5% of its weight to utilities stocks, a scant percentage compared to its established competitors.
Interestingly, FDLO’s largest sector weight is 21.1% to technology, which is almost unheard of in the land of low-volatility ETFs.
Its top holding is Google parent Alphabet Inc (NASDAQ:GOOGL), which is also unheard among rival products.
FDLO holds 121 stocks.
Great Fidelity ETFs: Fidelity Dividend ETF for Rising Rates (FDRR)
Investors have heard plenty about the adverse impact rising interest rates can have on some dividend-paying stocks — namely those hailing from the staples, real estate and utilities sectors. Knowing that, a dividend ETF aimed at combating rising rates could be a well-timed idea.
Fidelity Dividend ETF for Rising Rates (NYSEARCA:FDRR) tracks the Fidelity Dividend Index for Rising Rates, which “is designed to reflect the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields.”
This fund, like the aforementioned FDLO, is also a departure from the standard competitors in its space. FDRR may be a new ETF, but it already has one of the largest technology weights among all dividend ETFs, with almost 21% dedicated to that sector. Apple Inc. (NASDAQ:AAPL) is FDRR’s largest holding at almost 4%, which is also sizable compared to many competing funds.
Staples and utilities combine for less than 13% of FDRR’s weight. Rather, it is highly cyclical in its sector allocations — hence the potential benefit of rising interest rates.
Technology, consumer discretionary and industrials, all cyclical sectors, combine for almost 42% of this new ETF’s weight.
Great Fidelity ETFs: Fidelity Core Dividend ETF (FDVV)
This new ETF falls more in line with traditional dividend ETFs. Fidelity Core Dividend ETF (NYSEARCA:FDVV) follows the Fidelity Core Dividend Index, which “is designed to reflect the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends.”
Although it is somewhat framed as a dividend growth ETF, FDVV’s weight to sectors that are home to some stocks with enviable dividend increase streaks is low. For example, healthcare, industrial and staples names combine for just 10% of its weight.
Like FDRR, FDVV has a cyclical tilt with consumer discretionary, energy and financial services names combining for about half its weight. Top holdings include Exxon Mobil Corporation (NYSE:XOM), AT&T Inc. (NYSE:T) and Apple.
At the time of this writing, Todd Shriber did not own any of the aforementioned securities.