Fidelity to Launch Its First Suite of Factor-Based ETFs

Six New Factor ETFs Leverage Fidelity’s Extensive Fundamental and Quantitative Research Capabilities;

With New ETFs, Customers Will Have Access to 91 Commission-Free¹ ETFs

BOSTON--(BUSINESS WIRE)--Fidelity Investments^®, one of the industry’s leading providers of exchange traded funds (ETFs) with more than $250 billion in ETF assets under administration,² today announced it will expand its lineup of ETFs for individual investors and financial advisors with the introduction of the company’s first suite of factor-based ETFs.

Fidelity’s six new factor-based ETFs -- Fidelity Core Dividend ETF (FDVV), Fidelity Dividend ETF for Rising Rates (FDRR), Fidelity Low Volatility Factor ETF (FDLO), Fidelity Momentum Factor ETF (FDMO), Fidelity Quality Factor ETF (FQAL), and Fidelity Value Factor ETF (FVAL) -- will commence trading on the New York Stock Exchange on or about Thursday, September 15. Each of the new ETFs will be competitively priced with total expense ratios of just 0.29%. In addition, individual investors and advisors will be able to purchase each of the new ETFs commission-free³ online through one of Fidelity’s brokerage platforms.

“Fidelity has been executing on its ETF strategy for some time, and our success can be seen in the one quarter of a trillion dollars in ETF assets under administration that customers have entrusted to us, representing about 11% of all U.S.-domiciled ETF assets,”⁴ said Anthony Rochte, president of SelectCo, the company’s dedicated sector investing and ETF services division. “Launching the six factor-based ETFs reinforces our commitment to expanding Fidelity’s ETF investment manufacturing capabilities, while delivering an exceptional customer experience that is centered on providing choice, value and expertise.”

Once the six new factor-based ETFs are launched, customers will have access to 91 commission-free ETFs, including three Fidelity actively-managed bond ETFs, 11 Fidelity passive equity sector ETFs, Fidelity ONEQ, and 70 passive iShares ETFs.

New Factor ETFs Leverage Fidelity’s Extensive Investment Research Capabilities

Investment factors -- such as size, value, momentum, quality, and low volatility -- are at the core of “smart” or “strategic” beta strategies, and are investment characteristics that can enhance portfolios over time. And like traditional ETFs, factor-based ETFs can be used to build a well-diversified portfolio as well as potentially help improve returns and manage risk over time.

Fidelity’s six new ETFs, which will track proprietary indices, combine the company’s legacy of fundamental research with factor-based insights by our team of quantitative research analysts, while also leveraging Fidelity’s expertise and scale in managing index-based portfolios that are designed to provide customers with an outcome-oriented portfolio diversifier using a rules-based approach.

“Factor-based investing is one of the fastest growing areas of the ETF industry and an area where we believe our proven research capabilities and experience can add value for our customers,” said Joe DeSantis, chief investment officer in Fidelity’s Equity division. “For nearly a decade, Fidelity’s quantitative research team has been working collaboratively with our portfolio managers and fundamental analysts to develop factor models that incorporate what we believe are the best stock drivers from both fundamental and quantitative perspectives. We are now making this expertise available directly to our customers through our new ETFs. ”

With more than $250 billion in net inflows⁵ over the past five years, factor-based or “smart beta” ETFs now represent approximately $487 billion⁶ of the $2.3 trillion U.S. ETF market⁷. Of the more than $250 billion in ETF assets under administration on Fidelity’s platform, approximately $62 billion are in factor-based ETFs.

Fidelity Factor-based ETFs Investment Objectives and Index Definitions

• Fidelity Core Dividend ETF (FDVV) will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Core Dividend Index. The Fidelity Core Dividend Index is designed to reflect the performance of stocks of large- and mid-cap dividend-paying companies that are expected to continue to pay and grow their dividends. The index consists of stocks of companies with historically high dividend yields, low dividend payout ratios and high dividend growth.
• Fidelity Dividend ETF for Rising Rates (FDRR) will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Dividend Index for Rising Rates. The Fidelity Dividend Index for Rising Rates is designed to reflect the performance of stocks of large- and mid-cap dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields. The index consists of stocks of companies with historically high dividend yields, low dividend payout ratios, high dividend growth, and a positive correlation of returns to increasing 10-year U.S. Treasury bond yields.
• Fidelity Low Volatility Factor ETF (FDLO) will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity U.S. Low Volatility Factor Index. The Fidelity U.S. Low Volatility Factor Index is designed to reflect the performance of stocks of large- and mid-cap U.S. companies with lower volatility than the broader market. The index consists of stocks of companies with historically low volatility of returns, low beta (a measure of market sensitivity) and low earnings volatility.
• Fidelity Momentum Factor ETF (FDMO) will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity U.S. Momentum Factor Index. The Fidelity U.S. Momentum Factor Index is designed to reflect the performance of stocks of large- and mid-cap U.S. companies exhibiting positive momentum signals. The index consists of stocks of companies with historically high total and volatility-adjusted returns, high positive earnings surprises and low average short interest.
• Fidelity Quality Factor ETF (FQAL) will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity U.S. Quality Factor Index. The Fidelity U.S. Quality Factor Index is designed to reflect the performance of stocks of large- and mid-cap U.S. companies with a higher quality profile than the broader market. The index consists of stocks of companies with historically high free–cash-flow margins, high returns on invested capital and high-free-cash flow stability.
• Fidelity Value Factor ETF (FVAL) will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity U.S. Value Factor Index. The Fidelity U.S. Value Factor Index is designed to reflect the performance of stocks of large- and mid-cap U.S. companies that have attractive valuations. The index consists of stocks of companies with historically high free-cash-flow yields, low enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization), low price to tangible book value and low price to future earnings.

“Factor investing is an effective way to help clients to obtain various exposures or to implement particular strategies,” said DeSantis. “One potential strategy might be limiting volatility in a portfolio or seeking out-performance over time.”

Fidelity Expands Factor and ETF Educational Resources

Fidelity is making it easier for investors and advisors to learn more about the growing field of factor-based investing through three new Fidelity research papers. The new papers include:

• “An Overview of Factor Investing: The merits of factors as potential building blocks for portfolio construction”
• “How to Evaluate Factor-Based Investment Strategies: Due diligence on “smart beta” strategies should be anything but passive”
• “Putting Factors to Work: Three approaches to implementing factor-based investment strategies”

Fidelity also will be hosting two Educational Workshop sessions on ETFs and factor investing on September 22^nd. Individuals can register at https://www.fidelity.com/learning-center/events/educational-workshop.

Fidelity’s customers also can find in-depth investment insights, research, education and a highly customizable screener for finding ETFs and other exchange traded products (ETPs) at the ETF landing zone (www.fidelity.com/etfs) on Fidelity.com.

About Fidelity Investments
Fidelity’s goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $5.6 trillion, including managed assets of $2.1 trillion as of July 31, 2016, we focus on meeting the unique needs of a diverse set of customers: helping more than 25 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing nearly 10,000 advisory firms with investment and technology solutions to invest their own clients’ money. Privately held for nearly 70 years, Fidelity employs 45,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.

Before investing, consider the exchange traded funds’ investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. The securities of smaller, less well-known companies can be more volatile than those of larger companies. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund’s factor investment strategy may differ from more traditional index products. Depending on market conditions, fund performance may underperform compared to products that seek to track a more traditional index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV).

ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.

Beta is a measure of risk. It represents how a security has responded in the past to movements of the securities market. Smart beta represents an alternative investment methodology to typical cap-weighted benchmark investing and there is no guarantee that a smart beta or factor-based investing strategy will enhance performance or reduce risk.

The indices were created by FMRCo., Inc. using a rules-based proprietary index methodology and the performance of the funds and their indices may vary somewhat due to various factors including fees and expenses. You cannot invest directly in an index.

There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how a factor investment strategy may differ from more traditional index based approach. Depending on market conditions, factor based investments may underperform compared to investments that seek to track a market-capitalization weighted index.

Fidelity, Fidelity Investments, Fidelity Investments and the pyramid logo, are registered service marks of FMR LLC.

The third party trademarks appearing herein are the property of their respective owners.

It is not possible to invest directly in an index.

For iShares ETFs, Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with an exclusive, long-term marketing program that includes promotion of iShares ETFs and inclusion of iShares funds in certain FBS platforms and investment programs. Additional information about the sources, amounts, and terms of compensation is described in the ETF’s prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice. BlackRock and iShares are registered trademarks of BlackRock, Inc. and its affiliates. The 70 iShares commission-free ETFs offer is for online customers who open an account with a minimum balance of $2,500.

Fidelity Brokerage Services LLC, Member NYSE, SIPC
900 Salem Street, Smithfield, RI 02917

National Financial Services LLC, Member NYSE, SIPC,
200 Seaport Boulevard, Boston, MA 02110

Fidelity Investments Institutional Services Company, Inc.,
500 Salem Street, Smithfield, RI 02917

Clearing, custody or other brokerage services may be provided by National Financial Services LLC, or Fidelity Brokerage Services LLC. Members NYSE, SIPC. 200 Seaport Blvd, Boston, MA 02210.

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© 2016 FMR LLC. All rights reserved.

¹ Free commission offer applies to online purchases of select iShares ETFs in a Fidelity account. Fidelity accounts may require minimum balances. The sale of ETFs is subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). iShares ETFs are subject to a short-term trading fee by Fidelity if held less than 30 days.
² As of July 31, 2016.
³ Free commission offer applies to online purchases of select iShares ETFs in a Fidelity account. Fidelity accounts may require minimum balances. The sale of ETFs is subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). iShares ETFs are subject to a short-term trading fee by Fidelity if held less than 30 days.
⁴ As of June 20, 2016.
⁵ Morningstar Direct as of June 30, 2016.
⁶ Morningstar Direct as of June 30, 2016.
⁷ Morningstar Direct as of June 30, 2016.