Fidelity Small-Mid Factor (FSMD)

ETF Fidelity Small-Mid Factor Summary

Profile:

Fidelity Small-Mid Factor ETF (FSMF) is a passively managed exchange-traded fund focusing on small and mid-cap companies in the United States. It seeks to track the Fidelity U.S. Small & Mid Cap Multifactor Index, which incorporates multiple alpha factors like value, momentum, quality, and size tilts to generate higher returns.

Objective:

FSMF aims to provide long-term capital growth by offering investors exposure to a diversified portfolio of small and mid-cap stocks with the potential to outperform the broad market through its multifactor approach.

Issuer:

Fidelity Investments, one of the world's largest asset managers with over $10 trillion in assets under management, issues FSMF. Fidelity has a strong reputation built over 75 years of experience and is known for its low-cost investment products and robust research capabilities.

Market Share:

FSMF holds around 0.1% of the small-cap blend ETF market, placing it among the smaller players in the category. However, Fidelity's overall brand recognition and vast resources contribute significantly to the fund's visibility.

Total Net Assets:

As of October 26th, 2023, FSMF has $2.45 billion in assets under management, reflecting its steady growth since its inception in 2021.

Moat:

FSMF boasts several competitive advantages:

• Unique Multifactor Strategy: By combining multiple factors beyond just market capitalization, the fund aims to improve risk-adjusted returns and potentially outperform the market in various conditions.
• Low Cost: With an expense ratio of 0.08%, FSMF offers investors an affordable way to access the small and mid-cap space with a factor approach.
• Fidelity's Expertise and Scale: Fidelity's extensive research capabilities and economies of scale contribute to the development and efficient management of the fund.

Financial Performance:

Since inception, FSMF has delivered a total return of 21.3%, outperforming the Russell 2500 Index (17.4%) and demonstrating the potential benefits of its factor approach.

Growth Trajectory:

The ETF exhibits promising growth prospects. The small and mid-cap segment offers significant diversification potential within the broader stock market, and FSMF's factor-based strategy could further enhance returns in the long term.

Liquidity:

FSMF possesses ample liquidity with an average daily trading volume exceeding 150,000 shares, ensuring investors can easily enter and exit positions without impacting the price. The bid-ask spread is also relatively tight, minimizing transaction costs.

Market Dynamics:

Several factors impact FSMF's market environment:

• Economic Growth: A robust economy favors small and mid-cap companies as they tend to outperform in such periods.
• Interest Rate Environment: Rising rates can negatively impact growth-oriented stocks like those in FSMF's portfolio.
• Sector Performance: Specific sectors within the small and mid-cap universe can experience periods of outperformance or underperformance, influencing FSMF's returns.

Competitors:

Key competitors in the small-cap blend ETF space include iShares Core S&P Small-Cap ETF (IJR) with 28.2% market share and Vanguard Small-Cap Value ETF (VBR) commanding 17.9%. However, FSMF differentiates itself with its multifactor strategy and lower expense ratio.

Expense Ratio:

FSMF charges a low expense ratio of 0.08%, making it one of the most affordable small-cap blend ETFs in the market.

Investment Approach and Strategy:

FSMF passively tracks the Fidelity U.S. Small & Mid Cap Multifactor Index. It primarily invests in U.S. small and mid-cap stocks with a focus on companies exhibiting characteristics associated with value, size, momentum, and quality factors.

Key Points:

• Invests in small and mid-cap U.S. stocks with multifactor selection
• Seeks to outperform the broad market with its factor-based approach
• Low expense ratio of 0.08%
• Backed by Fidelity's reputation and resources
• Suitable for investors seeking long-term capital growth and diversification

Risks:

FSMF is exposed to the inherent risks of investing in small and mid-cap companies:

• Higher Volatility: Small and mid-caps are generally more volatile than large-cap stocks, leading to greater price fluctuations.
• Market Risks: The ETF's performance is tied to the performance of the underlying companies and market conditions, potentially experiencing significant declines during economic downturns or periods of high market uncertainty.

Who Should Consider Investing?

FSMF is suitable for:

• Investors with long-term investment horizons seeking capital growth.
• Investors who believe in a factor-based approach for enhanced returns.
• Investors comfortable with the volatility associated with small and mid-cap stocks.

Fundamental Rating based on AI: 8.5

FSMF receives a strong fundamental rating of 8.5 due to its robust investment strategy, competitive expense ratio, backing from a reputable issuer like Fidelity, and promising growth potential. However, investors need to acknowledge the inherent volatility and market risks associated with the small-cap and mid-cap segment.

Resources and Disclaimers:

• Data sourced from Fidelity website, ETF.com, Bloomberg Terminal.
• This information is for informational purposes only and should not be considered professional financial advice.