Market volatility remains a fairly persistent aspect for investors to contend with in the back half of the year. With elevated short-term volatility risks in the fourth quarter, Fidelity offers five ETFs worth consideration, including a screen for lower volatility stocks.
The second half continues to exhibit periods of elevated market volatility. July saw a period of heightened volatility and one of the worst sell-offs of growth stocks in the last decade, according to a recent paper from Fidelity.
For those advisors and investors looking to ride out elevated volatility risk this half, Fidelity offers five ETFs that use screens for lower volatility stocks.
In a Volatile Market, Consider FDLO
Fidelity Low Volatility Factor ETF (FDLO ) seeks to track the performance of the Fidelity U.S. Low Volatility Factor Index. The Index begins with a starting universe of the 1,000 largest stocks by market cap.
All securities are scored based on their five-year standard deviation of price returns, five-year beta, and five-year standard deviation of earnings per share (EPS). Companies with lower standard deviation of returns and EPS, as well as lower beta receive higher scores. It creates a portfolio of stocks with relatively more stable returns and earnings and resilience to market declines.
The Index includes the top-scoring stocks from each sector, adjusted for market cap. This adjustment aims to eliminate potential unintended exposure to small-cap stocks. Once the securities are selected, the Index’s sector weights are aligned with those of the starting universe. This seeks to eliminate unintended sector biases. Finally, within each sector, each stock is overweighted by the same amount (“equal active” weighting). This seeks to reduce concentration risks in individual names.
Fidelity also offers its multifactor ETF suite that seeks alpha potential through its focus on four factors within a single strategy. Companies included within each Fidelity Multifactor Index demonstrate a high level of quality alongside attractive valuations. They also exhibit positive momentum signals and relatively lower volatility than the broader market.
Combine Low Volatility With 3 Other Factors in a Single Strategy
Those advisors looking to invest in U.S. equities have two options within the Multifactor ETF suite. Fidelity U.S. Multifactor ETF (FLRG ) offers 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℠. Meanwhile, Fidelity Small-Mid Multifactor ETF (FSMD ) provides exposure to U.S. small- and mid-cap companies with high scores in the four factors.
For those advisors looking to invest internationally, two funds within the suite are worth consideration. Fidelity International Multifactor ETF (FDEV ) provides factor-based exposure to developed markets and international equities. The fund seeks to track the Fidelity International Multifactor Index℠, which includes internationally developed companies. At rebalance, the Index reallocates 25% of its portfolio to the sectors with the least correlation to the S&P 500 Index.
Fidelity Emerging Markets Multifactor ETF (FDEM ) offers exposure to emerging market companies that exhibit quality, low volatility, momentum, and value. FDEM seeks to track the Fidelity Emerging Markets Multifactor Index℠. The Index also reallocates 25% of its portfolio to those sectors least correlated to the S&P 500 at rebalance.
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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