Last year saw active investing take the ETF universe by storm. From the ETF rule’s arrival back in 2019 to a growing trend of mutual fund conversions, active ETFs have gained significant interest with their goal to navigate volatility and seek outperformance. Perhaps one of the greatest potential benefits offered by active, however, is how active can empower a potentially “enhanced” outcome relative to index investing. This would potentially lead to better results. That approach can be accessed in large cap ETF, the Fidelity Enhanced Large Cap Core ETF (FELC ).
See more: ETF 360: Fidelity Enters the Ring With Enhanced ETFs
What does enhanced mean in FELC’s case? FELC focuses on stocks mainly in the S&P 500, guided by a research-driven, scientifically applied investment process to objectively evaluate securities across certain traditional and non-traditional factors.
Combining active flexibility with an inherent set of rules, FELC looks to normally invest at least 80% of its assets in stocks in the S&P 500 with the flexibility to invest in other domestic public equity investments that may have the potential to outperform the index. Its active approach leans on a disciplined investment process to provide exposure similar to the index while seeking outperformance.
Fidelity’s Enhanced Equity ETF Suite
FELC and the other members of Fidelity’s enhanced equity ETF suite look to deliver core equity exposure with a disciplined, risk-managed process that leverages active investing. The firm’s enhanced equity ETFs look to factors like value, momentum, quality, and growth. They also look to non-traditional factors, too, that potentially create a fuller picture of a securities return potential. Those differentiated data sources can include, for example, option market data or securities lending data,. which is information that other strategies don’t often consider. Combining traditional and non-traditional factors benefits the ETF’s overall approach.
Additionally, the team takes a hands-on approach to managing the ETF. They interact with the systematic process and closely monitor the portfolio. For example, if there is a unique or impactful event, the portfolio managers can intervene to make decisions. This would avoid unnecessary risk in the portfolio. For example, if a stock is making headlines in the news that is not captured by the investment process, the team can leverage the benefits of active management to make changes to the ETF to help manage risk. This hands-on approach can be helpful to the ETF’s shareholders during periods of volatility.
Large Cap ETF FELC and Its Siblings
The large cap ETF, then, could appeal in 2024. It converted from a mutual fund this past November, charging an 18 basis point (bps) fee. In that short period, it has already outperformed its ETF Database Category Average, returning 7.7% over the last three months.
Along with FELC, Fidelity Investments also offers other enhanced ETF strategies like the Fidelity Enhanced Large Cap Value ETF (FELV ) and Fidelity Enhanced International ETF (FENI ) for example. During a year in which the early narrative will focus on when and how many rate cuts could potentially hit, a large cap ETF with an enhanced approach like FELC’s could play a role. This would mean looking for equities that could potentially do well in a variety of scenarios.
For more news, information, and analysis, visit the ETF Investing Channel.
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