A sound investment process and strong management team underpin Fidelity MSCI Utilities ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest 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 underweight position in yield exposure and momentum exposure compared with category peers. Low yield exposure is attributed to holding fewer stocks with high dividend or buyback yields -- instead, typically holding companies with a stronger focus on growth opposed to returning capital. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. 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

NextEra Energy

Southern Company

Duke Energy

Constellation Energy Corp

American Electric Power Company

Sempra Energy

Dominion Energy

Exelon

PG&E

Public Service Enterprise Group

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 Utilities 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 supports 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 impressive success ratio suggests that the firm does well for investors and that this fund may benefit from that. Strong risk-adjusted performance also supports the rating, as shown by the fund's five-year alpha calculated relative to the category index, 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 Utilities 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 Utilities 25/50 Index, and which represents the performance of the utilities sector in the U.S. equity market. It may or may not hold all of the securities in the MSCI USA IMI Utilities 25/50 Index. The fund is non-diversified. 

 The portfolio is overweight in utilities by 12.7 percentage points in terms of assets compared with the category average, and its consumer cyclical allocation is similar to the category. The sectors with low exposure compared to category peers are energy and communication services, underweight the average by 4.4 and 3.3 percentage points of assets, respectively. The portfolio is positioned across 70 holdings and is diversified among those holdings. In its most recent portfolio, 52.3% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category average's 69.6%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 4% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

High

Process

Fidelity MSCI Utilities ETF benefits considerably from its team, earning it an 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 solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position 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 Utilities Index ETF

FUTY tracks the MSCI US IMI Utilities 25/50 Index, a market-cap-weighted index of stocks in the US utilities sector.

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