Fidelity Disruptive Automation ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in quality exposure and an underweight in yield exposure compared with category peers. High quality exposure is attributed to stocks with low financial leverage and strong returns on equity. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Fidelity Disruptive Automation ETF earns an Above Average Process Pillar rating. 

The main contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 65%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent firm's superior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also strengthens the process. Lastly, the process is limited by the parent firm's five-year retention rate of 72%, which suggests it could do more to hold onto its portfolio managers.

 This strategy skews toward smaller, higher-growth companies than its average peer in the Global Large-Stock Growth Morningstar Category. Examining additional factor exposure, this strategy has consistently had a defensive tilt owing to its exposure to high-quality stocks over the past few years. High exposure to the quality factor means holding companies that are consistently profitable, growing, and have solid balance sheets. In recent months, the strategy was more exposed to the Quality factor compared with its Morningstar Category peers as well. This strategy has also leaned away from the stocks of companies with high dividend or buyback yields over these years. Its preference for stocks with lower yields may well lead to a growthier portfolio. However, growth stocks court additional risks if their forecasts do not come to fruition and are often more volatile than companies with stable dividends. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. In addition, this strategy has exhibited a tilt toward liquid assets, evidenced by consistently holding companies with relatively higher trading volumes. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In this month, the strategy also had more exposure to the Liquidity factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in industrials and technology relative to the category average by 30.6 and 17.3 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and financial services, underweight the average by 12.4 and 12.0 percentage points of assets, respectively. The portfolio is positioned across 53 holdings and is relatively concentrated. In particular, 48.2% of the strategy's assets are housed within the top 10 holdings, as opposed to the category’s 28.9% average.

Above Average

Process

Fidelity Disruptive Automation ETF earns an Average People Pillar rating. Charles W Hebard’s veteran status, with 23 years of listed portfolio management experience, brings a wealth of experience to the table. The strategies they currently manage have an average Morningstar Rating of 1.5 stars, demonstrating disappointing risk-adjusted performance compared with category peers. The team is composed of a solid supporting cast of five additional named managers, averaging 11 years of listed portfolio management experience. As a team, they manage seven investment vehicles together, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha in aggregate. The team's personal investments in the fund are insignificant, with the maximum investment by any one manager being between $10,000 and $50,000. That amount is too small to help align managers' interests with the fund's investors. The team has struggled to retain portfolio-management talent, detracting from its rating. The most recent documented departure was one month ago. High team turnover can hinder the effectiveness of a strategy's investment process.

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

Average

People

Fidelity earns an Above Average Parent rating because of its ability to stay ahead of its competition.

The firm's successful stock-picking mutual funds fueled its rise to prominence, and it has adapted well to investor preferences that have shifted markedly over the past two decades. Index funds and exchange-traded funds have garnered most of the industry's flows as money has gushed from actively managed products—Fidelity's included. Yet overall, the asset-management division has continued to achieve positive organic growth by introducing or maintaining aggressive pricing on its own suite of passively managed funds and expanding its menu of client-demanded investment structures, such as managed accounts and collective investment trusts. These moves are made possible by the firm's strong distribution network, scale, established brand, and willingness to tolerate losses on some products in pursuit of broader strategic objectives.

The firm is not without blemishes. It could stand to rationalize its lineup of active equity funds and do better to maintain continuity in an equity fund's portfolio construction as the fund's leadership inevitably changes.

Overall, the firm has served its funds' investors well. It boasts a topnotch fixed-income division and remains home to some of the industry's most talented equity managers and a strong team supporting its well-run target-date series.

Parent

Fidelity Disruptive Automation ETF

FBOT is an actively managed fund that invests in innovative businesses thought to have potentially provide disruption to the marketplace. The fund holds global disruptive automation companies, from industrial robotics to autonomous driving and AI.

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