If broader markets cooperate, these Fidelity ETFs are poised for big things in 2019
Fidelity may have entered the exchange-traded funds (ETFs) late relative to larger rivals, such as BlackRock (NYSE:BLK) and Vanguard, but tardiness is not preventing Boston-based Fidelity from becoming a major ETF player.
As of Dec. 4, Fidelity was the No. 15 ETF issuer in the U.S. with $12.50 billion in assets under management. Fidelity’s rapid ETF ascent can be explained in part by the company’s willingness to attack rivals on an important front: fees. In other words, Fidelity has not been shy about ensuring that its ETFs are, in many cases, cheap ETFs.
Additionally, clients can trade each Fidelity ETF (and a slew of iShares ETFs) commission-free. Fidelity ETFs include 10 smart beta funds, the industry’s least expensive lineup of sector ETFs and several fixed income offerings.
Here are some of the best Fidelity ETFs to consider in 2019.
Fidelity Low Duration Factor Bond ETF (FLDR)
Expense ratio: 0.15% per year, or $15 on a $10,000 investment
The Fidelity Low Duration Factor Bond ETF (NYSEARCA:FLDR) is just six months old, but for fixed income investors, this could be one of the best Fidelity ETFs in 2019. Among this year’s most popular bond ETFs are low and ultra-low duration fare, due in large part to the Federal Reserve’s multiple interest rates.
Higher interest rates sap the allure and capital appreciation potential of long-dated bonds, themes that have bond investors flocking to lower duration funds. FLDR targets the Fidelity Low Duration Investment Grade Factor Index.
That benchmark is “is designed to optimize the balance of interest rate risk and credit risk such that both returns and risk measures may be improved relative to traditional U.S. investment grade floating rate note indices,” according to Fidelity.
FLDR’s 30-day SEC yield of 2.79% is decent when considering the fund’s duration is just 0.94 years.
Fidelity Low Volatility Factor ETF (FDLO)
Expense ratio: 0.29% per year
Low volatility ETFs are coming back into style. Depending upon one’s point of view, that may not be a good thing, but if that theme lingers into next, and it very well could, the Fidelity Low Volatility Factor ETF (NYSEARCA:FDLO) could prove to be one of the best Fidelity ETFs.
FDLO is already earning its metaphorical paycheck. This Fidelity ETF is up a bit more than 5% this year while the S&P 500 is up just 1%. FDLO’s 2018 performance is more impressive when considering the fund’s 19.56% weight to the technology sector, which is high compared to other low volatility funds.
Among the defensive sectors, healthcare is the largest in FDLO at a weight of 14.58%, but the ETF is not excessively allocated to groups such as consumer staples, real estate or utilities. While reducing sensitivity to higher interest rates, FDLO’s sector lineup also indicates this Fidelity ETF takes a unique approach to reducing volatility.
Fidelity MSCI Communication Services ETF (FCOM)
Expense ratio: 0.0840% per year
Earlier this year, the boring old telecommunications sector became the significantly more exciting communication services sector. The Fidelity MSCI Communication Services ETF (NYSEARCA:FCOM) was recently reconfigured to reflect those changes, which is another way of saying that this Fidelity ETF is not your grandfather’s telecom ETF.
FCOM is a quasi-FANG ETF. Amazon(NASDAQ:AMZN) is the only member of the FANG quartet that was not moved to the communication services sector. Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Netflix(NASDAQ:NFLX) combine for over 40% of FCOM’s roster.
As many investors by now know, FANG names are among the primary culprits behind the surge in fourth-quarter volatility and subsequent market declines, indicating FCOM is a rebound play for risk-tolerant investors considering Fidelity ETFs in 2019.
Fidelity International Value Factor ETF (FIVA)
Expense ratio: 0.39% per year
The Fidelity International Value Factor ETF (NYSEARCA:FIVA) is one of the newest Fidelity ETFs, having debuted last January. It could also be one of the firm’s best funds in 2019 if global growth steadies and investors revisit downtrodden ex-US equities.
FIVA is a play on two themes that have incurred significant punishment in 2018: ex-U.S. developed markets stocks and the value factor. Nearly 20 countries are represented in FIVA with Japan and the U.K., homes to some of the developed world’s most depressed valuations, combining for over 38% of the fund’s weight.
FIVA’s near-term headwinds include lingering weakness in European banks, a relevant point because this Fidelity ETF devotes almost 21% of its weight to financial stocks.
On a broader level, FIVA could benefit from the U.S. sounding a less hostile tone on trade and ebbing fears of slowing economic growth. However, there are no guarantees those scenarios will be realized next year.
Fidelity Dividend ETF for Rising Rates (FDRR)
Expense ratio: 0.29% per year
Higher interest rates are not standing in the way of many S&P 500 member firms continuing to boost dividends. Fortunately, ETFs are making it easier to not only avoid high dividend sectors with histories of vulnerability to Fed tightening, but it is also increasingly easy to tap baskets of dividend payers that can thrive when rates rise.
That is exactly what the Fidelity Dividend ETF for Rising Rates (NYSEARCA:FDRR) is designed to do. This Fidelity ETF’s underlying index, the Fidelity Dividend Index for Rising Rates, “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,” according to the issuer.
FDRR allocates over a quarter of its weight to the technology sector, a sizable overweight to that sector relative to many traditional dividend ETFs. That is just fine because tech is home to enviable dividend growth rates and a reputation for weathering rate hikes.
Fidelity Quality Factor ETF (FQAL)
Expense ratio: 0.29% per year
Investors typically cope with elevated market volatility with low volatility or value strategies. A potentially better way of trimming portfolio volatility strategy is via the quality factor. Quality stocks usually have strong credit ratings, pristine balance sheets, predictable earnings growth and some commitment to shareholder rewards via buybacks or dividends.
Investors prizing those traits ought to consider the Fidelity Quality Factor ETF (NYSEARCA:FQAL). FQAL holds 126 stocks and targets the Fidelity U.S. Quality Factor Index. This Fidelity ETF has managed a modest year-to-date return and eight of its top 10 holdings are dividend payers.
At time when interest rates and concerns about the state of some BBB-rated corporate debt are rising, it is notable that this Fidelity ETF features relatively modest weights to heavily indebted sectors. For example, FQAL’s combined weight to the energy, materials and utilities sectors is just 11.30%.
Fidelity MSCI Consumer Staples ETF (FSTA)
Expense ratio: 0.0840% per year
The Fidelity MSCI Consumer Staples ETF (NYSEARCA:FSTA) is the least expensive consumer staples on the market, but that is only one perk of considering this Fidelity ETF. Consumer staples’ reputation for reduced volatility and above-average dividend yields are among the other reasons to get defensive with this Fidelity ETF.
After struggling in the first half of 2018, FSTA and rival consumer staples ETFs are finding their respective grooves. This Fidelity ETF, which yields 2.74%, is up more than 9% since the start of the third quarter. If the dollar weakens next year, this could be one of the best Fidelity ETFs in 2019.
Dow components Procter & Gamble (NYSE:PG) and Coca-Cola Co. (NYSE:KO) combine for almost 24% of FSTA’s weight.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
Todd Shriber has been an InvestorPlace contributor since 2014.
