A sound investment process and strong management team underpin Fidelity Disruptive Communications ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the second-cheapest 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 an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy’s management team earns an Above 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 index on a risk-adjusted basis over the long term. Fidelity Disruptive Communications ETF earns an Above Average Process Pillar rating. 

The largest 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 impressive risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also bolsters the rating. 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 tends to hold smaller, higher-growth companies compared with its average peer in the Communications Morningstar Category. Looking at additional factor exposure, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward high-volatility stocks over these years, meaning it has invested in companies that have a higher historical standard deviation of returns. This orientation tends to pay off most prominently when markets are hot. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. Additionally, this strategy has had lower yield exposure than peers, with the portfolio holding fewer stocks 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. In recent months, the strategy also had less Yield factor exposure than 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 technology and consumer cyclical relative to the category average by 20.7 and 11.9 percentage points, respectively. The sectors with low exposure compared to category peers are communication services and financial services, with communication services underweighting the average portfolio by 40.2 percentage points of assets and financial services similar to the average. The portfolio is positioned across 40 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 54.6% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 64.1% average.

Above Average

Process

Fidelity Disruptive Communications ETF earns an Above Average People Pillar rating. Charles W Hebard, the longest-tenured manager on the strategy, provides strong guidance, offering 23 years of listed portfolio management experience. The strategies they currently manage have an average Morningstar Rating of 1.5 stars, demonstrating disappointing risk-adjusted performance compared with category peers. A large cast of five additional named managers adds to the team's appeal, averaging 11 years of listed portfolio management experience. As a team, they manage seven investment vehicles together, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha in aggregate. Portfolio managers have made only a small personal investment in the fund, with the maximum investment by any one manager being between $10,000 and $50,000. That isn't sufficient to align their interests with those of the strategy's investors. 

 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.

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 Communications ETF

FDCF is an actively managed fund that invests in companies tied with disruptive technologies in communications services. The fund invests in securities of domestic and foreign issuers.

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