Several potential risks loom over markets in the second half, particularly within the U.S. For investors looking to dampen volatility, invest in quality, or seek returns through value or momentum strategies, the Fidelity Multifactor ETF suite may be worth consideration.
Recession concerns rose once again in August and signs of economic slowing in the U.S. Markets remain highly reactive to economic data and news, creating the potential for ongoing volatility in the second half. Should economic drawdown or recession threaten, quality and low volatility stocks may hold appeal for their relatively defensive posture.
The U.S. election continues to garner attention heading into the fall months as campaigns ramp up. It also creates the potential for short-term volatility and heightened investor uncertainty, further compounded by ongoing geopolitical risk.
Advisors and investors also found themselves contending with the abrupt unwind of the Japanese yen carry trade as of the beginning of August. The yen carry trade entailed borrowing yen at consistently low costs and then investing in other currencies with higher yields.
The unwind on the heels of Japan’s central bank raising rates led to rapid deleveraging and de-risking of portfolios. It caused reverberations across global and U.S. markets, and the full market implications of rising yen prices alongside potential falling U.S. interest rates remains to be seen.
The Advantages of Multifactor Investing
Factor investing provides targeted equity exposure for specific investment outcomes. Investors seek factor strategies to reduce risk, seek income, enhance return potential, and more. Combining multiple factors within a single strategy may provide added benefits for investors.
Fidelity offers two Multifactor ETFs focused within U.S. equities that target quality, value, low volatility, and momentum. Investors may benefit from a balanced portfolio that provides both exposure to cyclical and defensive factors. Momentum and value factors offer return-seeking potential and cyclical exposure. Meanwhile, the quality and low volatility factors offer defensive exposures. All four factors offer the potential for long-term outperformance.
See also: An Advisor’s Guide to Fidelity’s Multifactor ETF Suite
Securities included within each Fidelity Multifactor Index exhibit all four factors. These companies demonstrate high levels of quality at attractive valuations, along with positive momentum signals and lower volatility than the broader market.
Combine Factor Benefits With FLRG and FSMD
The Fidelity U.S. Multifactor ETF (FLRG ) provides exposure to large-cap U.S. companies that demonstrate quality, value, low volatility, and momentum factors. The fund seeks to track the Fidelity U.S. Multifactor Index ℠. The Index selects stocks from the top 1,000 U.S. companies by their float-adjusted market capitalization.
At each Index rebalance, the sector weights are adjusted to neutral. This allows the strategy to avoid taking on unintended sector bias. FLRG had 105 holdings as of 7/31/2024 with an expense ratio of 0.15%.
The Fidelity Small-Mid Multifactor ETF (FSMD ) provides exposure to U.S. small- and midcap companies that score highly on the same four factors. The fund seeks to track the Fidelity Small-Mid Multifactor Index℠. The Index selects stocks from the top 3,000 U.S. companies excluding the top 500 based on float-adjusted market capitalization.
Similar to FLRG, the sector weights adjust to neutral at each Index rebalance. FSMD had 594 holdings as of 7/31/2024, with an expense ratio of 0.15%.
For more news, information, and analysis, visit the ETF Investing Channel.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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