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

 The strategy's sensible investment philosophy merits a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in corporate bonds and A rated bonds compared with category peers. The team managing the passive product drives the strategy's Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, repeatable execution. Fidelity Low Duration Bond Factor 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. Strong risk-adjusted performance also contributes to the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. The parent firm's five-year risk-adjusted success ratio of 64% contributes to the process. 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. Their relatively high success ratio suggests that this firm does well for investors and that this fund may benefit from that.

 Compared with other funds in the Ultrashort Bond Morningstar Category, this fund takes on lower credit risk. But in terms of long-term interest-rate sensitivity, it hews closely to its average peer over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Compared with the category average, the managers have been significantly overweight corporate bonds in recent years. In the latest month, the strategy has relatively overweighted corporate debt compared with its peers as well. Additionally, there's been a notable overweight bias towards A rated bonds over the past few years. Compared with category peers, the strategy had more exposure to A rated bonds in the most recent month. Finally, during the past few years, the fund leaned meaningfully towards debt with one- to three-year maturities. In this month, the strategy also leaned more towards debt with one- to three-year maturities compared with its peers.

 This strategy has a 5.4% 12-month yield, higher than its average peer's 4.7%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 5.6%. Typically, higher yields come at the cost of higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

High

Process

Fidelity’s team receives an Above Average People Pillar rating. The most meaningful contributor to the rating is its parent firm's five-year success ratio of 63%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. A low cost, with fees that rank in its category's cheapest quintile, also contributes to the rating. A higher expense ratio reduces net returns, so low costs give this team an advantage. Lastly, the rating is limited by the parent firm's five-year retention rate of 72%, which suggests it could do more to retain its portfolio managers.

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 Low Duration Bond Factor ETF

FLDR tracks a modified market-value-weighted index of US investment-grade floating-rate bonds and fixed-rate Treasury notes with a target portfolio duration of less than one year.

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