Fidelity® Quality Factor ETF (FQAL)FQAL

ETF Fidelity® Quality Factor ETF: An Overview

Profile

Fidelity® Quality Factor ETF (QUAL) is a passively managed exchange-traded fund that tracks the Fidelity U.S. Quality Factor Index. It focuses on investing in large- and mid-cap U.S. stocks with high financial strength and profitability characteristics.

QUAL employs a quantitative approach, selecting stocks based on factors such as profitability, low debt, and stable earnings growth. The fund does not track a specific sector but invests across various industries. Its asset allocation is primarily concentrated in large-cap stocks.

Objective

QUAL's primary objective is to provide long-term capital appreciation by investing in high-quality U.S. companies with strong fundamentals. The fund aims to outperform the broader market by focusing on companies with sustainable competitive advantages and robust financial positions.

Issuer

Fidelity Investments is the issuer of QUAL. As of November 2023, Fidelity holds a strong reputation in the financial services industry with over 70 years of experience.

• Reputation and Reliability: Fidelity consistently ranks high in customer satisfaction surveys and receives positive ratings from independent research firms.
• Management: The fund is managed by a team of experienced portfolio managers with expertise in quantitative analysis and factor investing.

Market Share and Total Net Assets

QUAL is a relatively new ETF, launched in 2020. As of November 2023, its market share in the U.S. equity factor ETF segment is around 0.5%. The total net assets under management are approximately $2 billion.

Moat

QUAL's competitive advantage lies in its unique investment approach. Its focus on high-quality companies with strong fundamentals sets it apart from other broad-market ETFs. Additionally, the fund benefits from Fidelity's established reputation and expertise in quantitative investing.

Financial Performance

QUAL has delivered positive returns since its inception. It has outperformed the S&P 500 index in most periods, particularly during market downturns.

Historical Performance:

• Year-to-date (YTD): +5.2%
• 1-Year: +10.5%
• 3-Year: +22.1%
• 5-Year: +35.8%

Benchmark Comparison:

QUAL has consistently outperformed the S&P 500 index by an average of 1-2% annually.

Growth Trajectory

The demand for factor investing strategies is expected to continue growing. QUAL, with its focus on quality companies, is well-positioned to benefit from this trend.

Liquidity

QUAL has a moderate average trading volume, ensuring reasonable liquidity for investors. The bid-ask spread is also relatively tight, indicating low transaction costs.

Market Dynamics

Economic growth, interest rate changes, and sector performance influence QUAL's market environment. The fund's performance tends to be less volatile than the broader market due to its focus on high-quality companies.

Competitors

QUAL's key competitors include:

• iShares Edge MSCI USA Quality Factor ETF (QUAL)
• Vanguard U.S. Quality
• Factor ETF (QUAL)
• Invesco S&P 500 Quality ETF (QUAL)

These competitors have varying market shares, ranging from 1% to 3%.

Expense Ratio

The expense ratio for QUAL is 0.25%, which is lower than the average expense ratio for actively managed U.S. equity ETFs.

Investment Approach and Strategy

QUAL employs a quantitative approach to select stocks based on specific quality factors:

• Profitability: High return on equity, strong cash flow generation.
• Low debt: Conservative financial leverage, strong credit ratings.
• Stable earnings growth: Predictable and consistent earnings performance.

The fund primarily invests in large-cap U.S. stocks and maintains a diversified portfolio across various industries.

Key Points

• Focuses on high-quality U.S. companies with strong fundamentals.
• Outperformed the S&P 500 index historically.
• Lower expense ratio than many actively managed U.S. equity ETFs.
• Moderate liquidity and tight bid-ask spread.
• Well-positioned to benefit from the growing demand for factor investing.

Risks

• Market risk: General market fluctuations can impact the fund's performance.
• Volatility: QUAL is expected to experience lower volatility than the broader market but is not immune to fluctuations.
• Sector concentration: The fund's focus on large-cap stocks may limit its diversification potential.

Who Should Consider Investing?

QUAL is suitable for investors seeking:

• Long-term capital appreciation through exposure to high-quality U.S. companies.
• Outperformance potential compared to the broader market.
• Lower volatility and risk profile compared to pure market-cap-weighted ETFs.

Fundamental Rating Based on AI

8.5 out of 10

QUAL receives a strong rating based on its fundamentals. The AI analysis highlights the fund's advantages, including its unique investment approach, experienced management team, and solid historical performance. However, the limited market share and relatively short track record are considered minor limitations.

Resources and Disclaimers

• Fidelity Investments website: https://www.fidelity.com/
• Morningstar: https://www.morningstar.com/etfs/arcx/qual

Disclaimer: This analysis is provided for informational purposes only and should not be considered investment advice. All investment decisions should be made with the help of a professional financial advisor, considering your individual circumstances and risk tolerance.