Previewing Fidelity's Upcoming Low Volatility ETF


Later this week, fund giant Fidelity makes its initial foray into the fast-growing world of smart exchange-traded funds. Boston-based Fidelity is expected to launch six smart beta ETFs on Thursday September 15, one of which will be a low volatility offering known as the Fidelity Low Volatility Factor ETF.

Welcoming FDLO

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The Fidelity Low Volatility Factor ETF will trade under the ticker FDLO. As of September 8, Fidelity's ETFs had over $4.2 billion in assets under management, the bulk of which are concentrated in sector ETFs such as the Fidelity MSCI Information Technology Index ETF (NYSE:FTEC) and the Fidelity MSCI Health Care Index ETF (NYSE:FHLC).

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Fidelity's 11 sector ETFs will charge 0.084 percent per year, or $8.40 for every $10,000 invested. As of right now, that means Fidelity issues the least expensive sector ETFs on the market after implementing lower fees on those products at the start of July.

Although Fidelity ETFs are still growing, the company has a massive amount of ETF assets across its various platforms.

We have a quarter of a trillion of ETF assets under advisory on Fidelity platforms and over $60 billion are in smart beta ETFs, according to Tony Rochte, president of SelectCo, the companys dedicated sector investing and ETF services division, told S&P Capital IQ.

Peers In The Space

The Fidelity Low Volatility Factor ETF will do battle with well-entrenched rivals such as the iShares Edge MSCI Min Vol USA ETF (iShares Trust (NYSE:USMV)) and the PowerShares S&P 500 Low Volatility Portfolio (PowerShares Exchange-Traded Fund Trust II (NYSE:SPLV)).

To stand out, FDLO will have to be different and it appears as though that will be the case.

What Will Make FDLO Unique

The new FDLO will be different from USMV and SPLV in a few ways. By incorporating earnings volatility, Fidelitys process will result in different companies inside each sector since there can be disparity between the volatility of financial results within a sector that are not visible in stock performance. In addition, the sector diversification will be different, said S&P Capital IQ.

There is another obvious difference between the new Fidelity low volatility and its aforementioned rivals. As S&P Capital IQ noted, at the end of August, the Fidelity US Low Volatility Factor index had a 3.4 percent utilities weight.

Conversely, SPLV allocates 23.1 percent of its weight to utilities while the sector is 8.5 percent of USMV's weight.

S&P Capital IQ has overweight ratings on SPLV and USMV.

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