Fidelity High Dividend ETF sidesteps the common perils of investing in high-yield stocks, making it an attractive strategy that should deliver strong yield and stack up well against the Russell 1000 Value Index long-term. This low-cost fund merits a Morningstar Medalist Rating of Silver.
This index strategy takes a well-rounded approach to stock selection. Yield, measured relative to stocks’ sector peers, mainly drives the process. This can invite risk because the highest-yielding stocks are often some of the weakest. The fund combats that by incorporating payout ratio and dividend growth – signals of financial health—into stock selection. It also screens out firms with the worst payout ratios, as their dividends can belie their shaky outlooks. Some sinking stocks will slip through the cracks, but these measures reject many of the market’s riskiest firms and breed a high-quality portfolio.
Measuring yield on a sector-relative basis makes sense. It facilitates cleaner comparisons between stocks and emphasizes sectors often underrepresented in dividend funds, like technology. Normally this would dampen yield, but this fund reallocates portfolio weight from lower-yielding sectors (like technology) to higher-yielding ones (like real estate) at each rebalance. This drums up more income and highlights sectors that look cheap relative to their dividends.
A unique weighting system confers many of market-cap weighting’s benefits and keeps concentration in check. The fund weights stocks in proportion to their market capitalization, then layers on an equal weight boost to each stock. This feature promotes diversification and can minimize the impact of riskier high-yield holdings. Unlike many of its U.S.-focused peers, this fund may allocate up to 10% of its portfolio to international stocks, adding to its diversification and yield profiles.
This fund has struck a delicate balance between delivering strong yield and limiting risk. Since its inception in September 2016, the fund’s yield has consistently ranked in the large-value category's highest decile, while its volatility mirrored the Russell 1000 Value Index, its category benchmark. Risky stocks still populate the portfolio–and this fund has seen brief stretches of underperformance–but its success across market environments is a testament to this unconventional approach’s efficacy.

Analyst Rating

Unique but sound.

Analyst

Ryan Jackson

Microsoft

Apple

NVIDIA

Procter & Gamble

Exxon Mobil

PepsiCo

Broadcom

NextEra Energy

Philip Morris

Chevron

This fund generates attractive yield while avoiding most stocks that are cheap for valid reasons. It also taps into the market's collective expertise and diversifies away most sources of risk, meriting an Above Average Process Pillar rating.

Above Average

Process

A five-manager team at Geode Capital runs this strategy. Geode’s deep bench of experienced portfolio managers and expanding cast of supporting personnel and technology warrant an Above Average People Pillar rating. 
The depth of Geode’s investment personnel instill confidence that they will provide high-fidelity index tracking. Chief Investment Officer Diane Hsiung sits atop index portfolio management operations. Years of experience managing iShares ETFs ensured a smooth transition after her 2021 arrival. She oversees the named managers on this strategy: Louis Bottari, Peter Matthew, Robert Regan, Payal Gupta, and Navid Sohrabi. It’s an experienced group that draws support from two assistant portfolio managers, both of whom were recently promoted from the operations team. A pair of index analysts help the team prepare for index rebalances and corporate actions. 
Geode takes a team approach to portfolio management, creating layers of backup for each strategy to minimize the effects of any personnel turnover. Managers primarily review and approve trades before handing them to a dedicated trading desk. Tracking performance comes first, but they can use discretion when value-add opportunities present themselves around rebalances. Most of the managers’ workflow is automated, though, and Geode has invested to ensure their technology resources are up to speed. 
An independent risk oversight team regularly reviews portfolio performance. Managers’ compensation is tied to index tracking, aligning their interests with investors’.

People

Fidelity's myriad strengths earn it an Above Average Parent rating.

The firm has adapted well to investor preferences that have shifted markedly over the past two decades. As index funds and exchange-traded funds have garnered most of the industry's flows and money has gushed from actively managed products—Fidelity's included—the firm has continued to grow its top line, reinvested heavily into its existing capabilities, and sought to stay ahead of the competition with new products and aggressive pricing. 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. Many of the active equity funds it has launched in recent years have questionable investment merit. For those that are well established, the firm could do better to maintain continuity in an equity fund's risk profile as the fund's leadership inevitably changes.

Overall, the firm has served its funds' investors well. It boasts an outstanding fixed-income division and a strong team supporting its target-date series, and it's home to some of the industry's most talented equity managers. It remains an attractive destination for top talent, which tends to stay for the long haul.

Parent

Fidelity High Dividend ETF

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