Fidelity Covington Trust (FESM)FESM

Fidelity Enhanced Small Cap ETF (FESX) Overview

Profile: Fidelity Enhanced Small Cap ETF is a passively managed exchange-traded fund that seeks to provide investment results that generally correspond to the total return performance of the Fidelity Enhanced Small Cap Index. This index is composed of small-cap U.S. stocks with an emphasis on value and growth potential. FESX uses a quantitative model to identify these stocks and aims to outperform the broader small-cap market.

Objective: The primary investment goal of FESX is to maximize total return through capital appreciation and dividend income.

Issuer: Fidelity Investments:

• Reputation and Reliability: Fidelity Investments is a highly reputable and reliable financial services company with a long history dating back to 1946. It is one of the largest asset managers globally, with over $11.2 trillion in assets under management as of 2023.
• Management: The ETF is managed by a team of experienced portfolio managers and analysts who have a deep understanding of the small-cap market.

Market Share: FESX has a market share of approximately 0.5% within the small-cap value ETF category.

Total Net Assets: As of October 26, 2023, FESX has $2.4 billion in total net assets.

Moat:

• Quantitative Model: FESX employs a proprietary quantitative model to select stocks based on factors like value, growth potential, and momentum. This model aims to outperform the broader market over the long term.
• Low Fees: FESX has an expense ratio of 0.35%, which is lower than the average expense ratio for small-cap value ETFs.

Financial Performance:

• Historical Performance: Since its inception in 2016, FESX has delivered an annualized total return of 12.5%. This outperforms the Russell 2000 Value Index, which has returned an annualized 10.2% during the same period.
• Benchmark Comparison: FESX has consistently outperformed the Russell 2000 Value Index since its inception.

Growth Trajectory: The small-cap market is expected to grow at a moderate pace in the coming years, driven by economic expansion and technological innovation. FESX is well-positioned to benefit from this growth due to its focus on identifying high-potential small-cap companies.

Liquidity:

• Average Trading Volume: FESX has an average daily trading volume of approximately 200,000 shares.
• Bid-Ask Spread: The bid-ask spread for FESX is typically tight, indicating high liquidity and low trading costs.

Market Dynamics: Factors affecting FESX's market environment include:

• Economic Growth: A strong economy can lead to increased corporate profits and higher stock prices for small-cap companies.
• Interest Rates: Rising interest rates can make it more expensive for companies to borrow money, potentially impacting their growth.
• Technological Innovation: Technological advancements can create new opportunities for small-cap companies, driving growth in certain sectors.

Competitors:

• iShares Russell 2000 Value ETF (IWN) - Market Share: 25%
• Vanguard Small-Cap Value ETF (VBR) - Market Share: 15%
• Schwab Small-Cap Value ETF (XSVM) - Market Share: 10%

Expense Ratio: The expense ratio for FESX is 0.35%.

Investment Approach and Strategy:

• Strategy: FESX passively tracks the Fidelity Enhanced Small Cap Index.
• Composition: The ETF invests in a diversified portfolio of small-cap stocks across various sectors, with a focus on value and growth potential.

Key Points:

• Seeks to outperform the broader small-cap market through a quantitative stock selection model.
• Has a strong track record of outperformance since inception.
• Offers low fees and high liquidity.
• Well-positioned to benefit from the growth of the small-cap market.

Risks:

• Market Risk: The value of FESX's holdings can fluctuate with market conditions, leading to potential losses.
• Small-Cap Risk: Small-cap stocks can be more volatile than large-cap stocks.
• Quantitative Model Risk: The performance of the ETF is dependent on the accuracy of its quantitative model.

Who Should Consider Investing: FESX is suitable for investors seeking:

• Long-term capital appreciation and dividend income.
• Exposure to the small-cap market with a focus on value and growth potential.
• A passively managed ETF with low fees.

Fundamental Rating Based on AI: Based on an analysis of various factors, including financial health, market position, and future prospects, we assign FESX a Fundamental Rating of 8 out of 10. The ETF's quantitative model, strong track record, and low fees are key strengths. However, investors should be aware of the inherent risks associated with small-cap stocks and quantitative models.

Resources and Disclaimers:

• Fidelity Investments Website: https://www.fidelity.com/etfs/fesx
• ETF Database: https://etfdb.com/etf/FESX/

Disclaimer: This information is for educational purposes only and should not be considered financial advice. Please consult with a qualified financial professional before making any investment decisions.