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

 The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in liquidity exposure and an overweight in quality exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' 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

Eli Lilly

UnitedHealth Group

Johnson & Johnson

Merck

AbbVie

Thermo Fisher Scientific

Abbott Labs

Danaher

Pfizer

Amgen

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 MSCI Health Care ETF earns a High Process Pillar rating. The largest 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 contributes to 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 noteworthy success ratio suggests that the firm does well for investors and that this fund may benefit from that. Respectable risk-adjusted performance also contributes to the process, as shown by the fund's five-year alpha calculated relative to the category average, which suggests the process was successful over that period.

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 MSCI USA IMI Health Care 25/50 Index.  The fund invests at least 80% of assets in securities included in the fund's underlying index. The fund's underlying index is the MSCI USA IMI Health Care 25/50 Index, and which represents the performance of the health care sector in the U.S. equity market. It may or may not hold all of the securities in the MSCI USA IMI Health Care 25/50 Index. The fund is non-diversified. 

 The portfolio has allocations in its top two sectors, basic materials and industrials, that are similar to the category. The sectors with low exposure compared to category peers are technology and healthcare; however, the allocations are similar to the category. The portfolio is composed of 368 holdings and is relatively concentrated. Specifically, 48.7% of the fund’s assets are housed within the top 10 holdings, compared with the typical peer's 38.7%. And finally, in terms of portfolio turnover, on a year-over-year basis, 6% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

High

Process

Fidelity MSCI Health Care ETF's strong team drives the strategy's Above Average People Pillar rating. There are three managers listed on the fund: Paul Whitehead, Jennifer Hsui, Peter Sietsema. Experience on the team is abundant, with 13 years of average portfolio management experience. Together, they manage a total of 29 strategies, with a Silver 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 MSCI Health Care ETF

FHLC tracks a market-cap-weighted index of stocks in the broad US health care sector.

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Launched on 10/21/2013, the Fidelity MSCI Health Care Index ETF (FHLC) is a passively managed exchange traded fund designed to provide a broad exposure to the Healthcare - Broad segment of the equity market.

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After underperforming in 2023, the healthcare sector seems to be back on track at the start of the New Year. Healthcare generally outperforms during periods of low growth and high uncertainty.

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Technology continues to outperform, but defensive sectors like Utilities, Consumer Staples, and Healthcare may see increased interest. The Fidelity MSCI Health Care Index ETF offers broad exposure to the healthcare sector and has attracted significant assets. FHLC provides low-cost, diversified exposure to over 400 healthcare companies but has underperformed similar ETFs in terms of performance.

FHLC: Healthcare Can Work Well In 2024

Fidelity MSCI Health Care Index ETF owns a portfolio of 400 US healthcare stocks and should benefit from long-term growth in the sector. FHLC has performed comparably to the S&P 500 in the long run. FHLC's valuation is currently high and there is downside risk if an economic recession occurs, so investors may want to wait for a better entry point.

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The healthcare industry's potential for long-term growth and stability could give FHLC a silver lining as the market trajectory remains somewhat uncertain. Despite underperforming during bull markets, FHLC has shown resilience during economic downturns, giving investors the option to trade some momentum for greater consistency in this ETF. This ETF's robust fundamentals and strong focus on leading healthcare names could make it a prime option for those with a longer-term outlook and lower risk tolerance.

FHLC: Long-Term Growth And Stability Make Healthcare A Low-Volatility Bet

FHLC possesses a large-cap, stable portfolio of diversified healthcare stocks, which enjoys a low expense ratio and strong price growth over the long run. Over the long-run, FHLC's delivered double-digit returns. This was possible as most of the large-cap stocks in which FHLC invested delivered strong returns. FHLC has a very low yield and is trading almost at par with its net asset value.

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Exchange-traded funds provide investors with an easy way to diversify and minimize risk. The Fidelity MSCI Health Care Index ETF contains more than 430 of the top U.S. healthcare stocks.

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Healthcare is considered a defensive sector that should outperform during times of high inflation, weak economic growth, and challenging markets. In addition, demographics should be a tailwind as the U.S. population is aging, and going forward, that trend is only accelerating.

FHLC: Aging U.S. Demographics Should Boost This Health Care ETF

The health care sector - as measured by the Fidelity Health Care ETF - outperformed the S&P 500 by ~12.2% over the past year. That's because health care is considered to be a relatively defensive sector due to the fact that healthcare - in general - cannot be delayed, no matter the economic environment.

FHLC: Because A Healthy Investor Holds Health Care Stocks

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Health Care is one of the "defensive" sectors that is generally thought to weather times of inflation/recession better than most. That's because many health care issues must be timely dealt with regardless of inflation/recession, many people have insurance, and health-care providers can pass on cost-inflation to consumers.

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The healthcare sector has gained some momentum lately on investors' rush to safety in a volatile stock market. The sector is non-cyclical in nature, which in turn, is providing a cushion to the portfolio.

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Healthcare ETFs like FHLC that comprise defensive stocks performed much better than other healthcare ETFs during the past three months. However, after recording 100% price growth between March 2020 and December 2021, FHLC's growth has slowed down and has almost become stagnant.

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Gilead Sciences

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News for Fidelity MSCI Health Care ETF ETF (FHLC)