Fidelity International has launched a new suite of smart beta ETFs in Europe that integrates quality and value investment factors.
Fidelity has unveiled a new multi-factor ETF range in Europe.
The Fidelity Global Quality Value UCITS ETF (FGLV) and the Fidelity US Quality Value UCITS ETF (FUSV) have debuted on the London Stock Exchange in USD and GBP and are also available on Xetra in euros. Additional listings on the SIX Swiss Exchange and Borsa Italiana are anticipated shortly.
Fidelity has also indicated plans to expand the suite with ETFs targeting other geographic regions.
Each ETF tracks a proprietary Fidelity-branded strategy index, designed to identify companies demonstrating strong valuation metrics, robust ESG characteristics, and high-quality attributes.
Focusing on large- and mid-cap equities within the global developed and US stock markets, the methodology begins by excluding companies involved in severe ESG controversies, those violating global norms like the UN Global Compact principles, and firms with revenues tied to controversial industries.
Eligible stocks are evaluated across three factor dimensions: quality (cash flow margin, return on invested capital, and free cash flow stability), ESG (management of ESG-related risks and opportunities), and value (metrics such as free cash flow yield, EBITDA to enterprise value, tangible book value to price, and forward earnings to price).
Notably, Fidelity’s approach incorporates enhancements to the value factor by considering intangible assets, such as research and development, often overlooked in traditional valuations.
Stocks with negative combined Quality and ESG Scores are excluded, and the remaining securities are ranked using a size-adjusted value score that favours larger companies with strong value factor exposure.
The global and US indices aim to include 250 and 125 stocks, respectively, while ensuring geographical diversification (in the global index) and representation across all GICS sectors.
The indices undergo a full reconstitution annually, with monthly rebalancing if a constituent breaches the ESG exclusion criteria.
FGLV has an expense ratio of 0.30%, while FUSV charges 0.20%. Both ETFs are classified as Article 8 products under the European Union’s Sustainable Finance Disclosure Regulation (SFDR), reflecting their focus on promoting environmental and social characteristics.
These launches build on the success of Fidelity’s $2.5 billion Quality Income ETF range, which offers exposure to high-quality companies with attractive dividend yields.
Alastair Baillie Strong, Head of ETFs at Fidelity International, commented: “The foundation of our ETFs is their ability to leverage our research and quantitative capabilities to provide differentiated exposures, through enhanced index or active ETFs. We want to provide clients with our expertise, as they seek to tackle the many idiosyncratic risks posed by today’s volatile global macroeconomic and geopolitical backdrops. The new Quality Value ETFs can help clients build a diversified allocation with quality names while also investing in attractively valued companies.”