A sound investment process and strong management team underpin Fidelity Digital Health 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 a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. 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

DexCom

Intuitive Surgical

ResMed

Veeva Systems

Inspire Medical Systems Inc

Insulet

Tapestry

Five Point Holdings

MAXIMUS

Cigna

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 Digital Health ETF earns a High Process Pillar rating. The most significant contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 64% also strengthens the process. 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. Their relatively high success ratio suggests that the firm does well for investors and that this fund may benefit from that. The parent firm's strong risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, influences the rating as well.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Digital Health Index℠.  The fund normally invests at least 80% of assets in securities included in the index and in depositary receipts representing securities included in the index. The index is designed to reflect the performance of a global universe of companies across the market capitalization spectrum providing healthcare records management, connected healthcare devices, surgical robotics, telemedicine, and and other technology-enabled healthcare products and services. The fund is non-diversified. 

 The portfolio has allocations in its top two sectors, industrials and consumer defensive, that are similar to the category. The sectors with low exposure compared to category peers are healthcare and basic materials, with healthcare underweighting the average portfolio by 8.4 percentage points of assets and basic materials similar to the average. The portfolio is composed of 55 holdings and invests 38.6% of assets in its top 10 holdings, similar to the category average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 36% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

High

Process

Fidelity Digital Health ETF's strong team drives the strategy's Above Average People Pillar rating. There’s a deep bench of five managers listed on the fund. Experience on the team is abundant, with 11 years of average portfolio management experience. Together, they manage a total of 60 strategies, with a Gold asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Above 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 Digital Health ETF

FDHT tracks a market-cap-weighted index of globally-listed companies involved in digital health technologies.

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