A sound investment process and strong management team underpin Fidelity Disruptive Finance ETF's Morningstar Medalist Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's effective investment philosophy supports 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. A high quality exposure means holding stocks that are consistently profitable, growing, and have solid balance sheets. 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 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

Visa

Mastercard

BlackRock

Capital One

Equifax

Intercontinental Exchange

FB Financial

dLocal Ltd

Apollo Global Management

Flywire Corp

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 Finance ETF earns an Above Average Process Pillar rating. 

The main driver of 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 beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent firm's excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also influences 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 Financial Morningstar Category. Examining additional factor exposure, this strategy has consistently favored high-quality stocks, including those with low financial leverage and solid returns on equity, compared with Morningstar Category peers during recent years. Though it may trail peers during an economic boom, this orientation contributes to helping it weather periods of economic stress better. In recent months, the strategy was more exposed to the Quality factor compared with its Morningstar Category peers as well. The managers have also tended to underweight yield compared with peers during recent years. Returning capital to shareholders often is not the highest priority of such businesses. The shares of such companies can deliver strong returns if they fulfill their growth projections, but they also carry more risk. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. Furthermore, the strategy had more exposure to high-volatility stocks compared with Morningstar Category peers in recent months. Such exposure tends to pay off when markets are hot and to be costly when they are not.  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 industrials relative to the category average by 21.5 and 4.0 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and healthcare, with financial services underweighting the average portfolio by 21.1 percentage points of assets and healthcare similar to the average. The strategy owns 46 securities and invests 47.6% of assets in its top 10 holdings, similar to the category average.

Above Average

Process

Fidelity Disruptive Finance ETF earns an Above Average People Pillar rating. Charles W Hebard, the longest-tenured manager on the strategy, boasts 23 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 1.5 stars, indicating that their risk-adjusted returns have underperformed the category average. 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. 

 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 Finance ETF

FDFF is an actively managed fund that invests in disruptive finance companies. These are organizations in the finance industry that are pushing for innovative developments that may significantly alter the way they deliver their products and services. The fund invests in securities of domestic and foreign issuers.

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