Fidelity launches pair of factor-based international equity ETFs on NYSE

Jan 23rd, 2018 | By | Category: Equities

Fidelity Investments has expanded its smart beta ETF offering with the introduction of a pair factor-based international equity ETFs on NYSE Arca.

Fidelity launches smart beta ETFs targeting international equities

The new Fidelity ETFs provide exposure to international equities with sustainable dividends and value characteristics.

The funds track in-house indices and provide exposure to the factor risk premia associated with high-dividend and value stocks.

Each index targets large- and mid-cap equities listed on developed markets outside the US.

The Fidelity International High Dividend ETF (FIDI US) tracks the performance of international high-dividend-paying stocks that are expected to continue to pay and grow their dividends.

The parent universe is initially screened to remove stocks with no dividend yield as well as eliminating the top 5% of stocks with the highest payout ratio. The remaining stocks are then ranked according to a composite score determined by three characteristics: those with higher dividend yields, lower dividend-payout ratios, and higher dividend-growth rates are ranked higher.

The process then aims to select approximately the 100 highest-ranked stocks, and constituents are weighted by their size-adjusted composite scores while accounting for thresholds in size and regional exposure.

Japan and the UK top the country exposure list with around 17% weight each, followed by France (10.8%), Australia (8.0%) and Germany (8.0%). Financials accounts for a third of the total sector exposure, while consumer discretionary (19.2%), energy (11.9%), utilities (10.5%) and telecommunications (10.0%) also play significant roles.

The Fidelity International Value Factor ETF (FIVA US) tracks the performance of international stocks that have attractive valuations.

To construct the underlying index, constituents of the parent universe are assigned a composite score based on four characteristics associated with the value factor; stocks with high free-cash-flow yield, low enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization), low price to tangible book value, and low price to future earnings receive a higher score.

The methodology then also aims to select approximately the 100 highest-ranked stocks with constituents weighted by their size-adjusted composite scores while accounting for thresholds in size and regional exposure.

FIVA has a higher exposure to Japan, compared to its dividend-factor counterpart, at 23.9%. The UK (16.0%), France (10.7%) and Germany (8.6%) are the next largest exposures, while the weight of Australia (2.8%) is significantly reduced. Financials once again tops the sector exposure at 23.6%, followed by industrials (15.0%), consumer discretionary (12.0%) and consumer staples (10.3%).

“Many investors have expressed strong interest in international dividend and value factor strategies,” said Greg Friedman, head of ETF management and strategy at Fidelity. “These new ETFs, which will help us address that demand, benefit from our powerful research capabilities and decades of investing experience and expertise and provides great value to investors.”

The funds have total expense ratios (TERs) of 0.39% and are available to trade commission-free through Fidelity’s online brokerage platforms.

“Overall cost is a key consideration when evaluating ETFs. Commissions, bid-ask spreads, and expense ratios are three important factors in evaluating overall ETF cost,” added Friedman. “Our commission-free ETFs provide customers with tighter spreads and lower expense ratios, compared to the average commission-free ETFs.”

In Europe, Fidelity offer a suite of four smart beta income ETFs tracking high-dividend companies with quality characteristics listed globally or from the US, Europe, or emerging markets.

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