Designed to provide broad exposure to the Style Box - Large Cap Blend category of the market, the Fidelity Quality Factor ETF (FQAL) is a smart beta exchange traded fund launched on 09/12/2016.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
Managed by Fidelity, FQAL has amassed assets over $1.10 billion, making it one of the larger ETFs in the Style Box - Large Cap Blend. This particular fund, before fees and expenses, seeks to match the performance of the Fidelity U.S. Quality Factor Index.
The Fidelity U.S. Quality Factor Index reflects the performance of stocks of large and mid-capitalization U.S. companies with a higher quality profile than the broader market.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for FQAL are 0.15%, which makes it one of the cheaper products in the space.
It's 12-month trailing dividend yield comes in at 1.10%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Information Technology sector - about 28.10% of the portfolio. Financials and Healthcare round out the top three.
Looking at individual holdings, Nvidia Corp (NVDA) accounts for about 7.21% of total assets, followed by Microsoft Corp (MSFT) and Apple Inc (AAPL).
FQAL's top 10 holdings account for about 36.38% of its total assets under management.
Performance and Risk
The ETF return is roughly 16.69% and it's up approximately 24.66% so far this year and in the past one year (as of 07/16/2024), respectively. FQAL has traded between $47.33 and $63.07 during this last 52-week period.
The ETF has a beta of 0.98 and standard deviation of 16.89% for the trailing three-year period. With about 130 holdings, it effectively diversifies company-specific risk.
Alternatives
Fidelity Quality Factor ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core S&P 500 ETF (IVV) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. IShares Core S&P 500 ETF has $508.04 billion in assets, SPDR S&P 500 ETF has $556.10 billion. IVV has an expense ratio of 0.03% and SPY charges 0.09%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Blend.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
Fidelity Quality Factor ETF (FQAL): ETF Research Reports
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
SPDR S&P 500 ETF (SPY): ETF Research Reports
iShares Core S&P 500 ETF (IVV): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
