Making its debut on 09/12/2016, smart beta exchange traded fund Fidelity Quality Factor ETF (FQAL) provides investors broad exposure to the Style Box - Large Cap Blend category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is managed by Fidelity. FQAL has been able to amass assets over $1.03 billion, making it one of the larger ETFs in the Style Box - Large Cap Blend. FQAL seeks to match the performance of the Fidelity U.S. Quality Factor Index before fees and expenses.
The Fidelity U.S. Quality Factor Index reflects the performance of stocks of large and mid-capitalization U.S. companies with a higher quality profile than the broader market.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.16% for FQAL, making it one of the cheaper products in the space.
It has a 12-month trailing dividend yield of 1.25%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
For FQAL, it has heaviest allocation in the Information Technology sector --about 29.70% of the portfolio --while Financials and Consumer Discretionary round out the top three.
Taking into account individual holdings, Microsoft Corp (MSFT) accounts for about 6.62% of the fund's total assets, followed by Apple Inc (AAPL) and Nvidia Corp (NVDA).
The top 10 holdings account for about 33.91% of total assets under management.
Performance and Risk
The ETF has added roughly 1.34% and was up about 12.82% so far this year and in the past one year (as of 05/27/2025), respectively. FQAL has traded between $57.29 and $69.13 during this last 52-week period.
FQAL has a beta of 0.98 and standard deviation of 17.04% for the trailing three-year period. With about 131 holdings, it effectively diversifies company-specific risk.
Alternatives
Fidelity Quality Factor ETF is an excellent option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.
SPDR S&P 500 ETF (SPY) tracks S&P 500 Index and the Vanguard S&P 500 ETF (VOO) tracks S&P 500 Index. SPDR S&P 500 ETF has $596.33 billion in assets, Vanguard S&P 500 ETF has $636.01 billion. SPY has an expense ratio of 0.09% and VOO charges 0.03%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Blend.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Fidelity Quality Factor ETF (FQAL): ETF Research Reports Apple Inc. (AAPL): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report SPDR S&P 500 ETF (SPY): ETF Research Reports Vanguard S&P 500 ETF (VOO): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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