Fidelity® Momentum Factor ETF earns a Morningstar Medalist Rating of Neutral with strength in areas such as People offset by weaker spots such as Process. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy gets a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in momentum exposure and an underweight in quality exposure compared with category peers. Momentum exposure is attributed to holding stocks currently on a winning streak and selling those that are on a downtrend. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The team managing the passive product drives the strategy's Above Average People Pillar rating. The strategy belongs to a strong firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a favorable lineup success ratio and overall attractive fees.

Analyst Rating

Apple

Microsoft

Alphabet

Amazon

NVIDIA

Eli Lilly

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Merck

Broadcom

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® Momentum Factor ETF earns a Below Average Process Pillar rating. 

The process is strengthened by the parent firm's five-year risk-adjusted success ratio of 64%. 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. However, the rating is limited by the fund's weak long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's five-year retention rate of 62% also holds the rating back.

 This strategy leans toward smaller, deeper value companies than its average peer in the Large Growth Morningstar Category. Looking at additional factor exposure, this strategy has continually had exposure to high-momentum stocks compared with Morningstar Category peers in the last few years. Momentum is based on the premise that stocks that have recently outperformed will continue to outperform, and those that have underperformed will stay behind. In recent months, the strategy was more exposed to the Momentum factor compared with its Morningstar Category peers as well. This strategy has also favored low-quality stocks. This means the fund avoids holding companies that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, the managers have tended to overweight yield, shown by the portfolio's high exposure to stocks paying dividends or buying back shares. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. In this month, the strategy also had more exposure to the Yield 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 financial services relative to the category average by 3.5 and 3.3 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 9.6 and 4.9 percentage points of assets, respectively. The portfolio is composed of 129 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 32.8% of the portfolio's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 52.5% average.

Below Average

Process

Fidelity® Momentum Factor ETF benefits considerably from its team, earning it an Above Average People Pillar rating. There’s a sizable 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 Momentum Factor ETF

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