New York, NY – Investors seeking exposure to undervalued large-cap and mid-cap stocks in the U.S. may consider the Fidelity Value Factor ETF (NYSEARCA:FVAL). Launched on September 12, 2016, and managed by Fidelity Management & Research Company LLC, this ETF tracks the performance of the Fidelity U.S. Value Factor Index.

One key aspect of this ETF is its methodology, which focuses on selecting undervalued stocks based on indicators such as free cash flow yield, EBITDA/EV, tangible book value to price, and earnings yield. The index applies these indicators with an equal-weighted impact, calculating a composite score for each stock within industry groups before combining them at the sector level. Additionally, a size adjustment is made to remove size bias, attributing weight to each stock based on its market cap.

Over the past five years, FVAL has had an annualized return of 13.18%, outperforming mid-cap stocks significantly but underperforming large-cap ones to some extent. While the ETF has shown recovery from market lows in 2020, the overall performance compared to broad market indexes like the S&P 500 is something to consider.

One of the risks associated with FVAL is the concentration risk, with a substantial portion of the portfolio exposed to the Technology sector. This concentration, along with high exposure to stocks like Apple and Microsoft, may impact the perceived value approach of the ETF. Additionally, the expense ratio of 0.15% is something investors need to weigh against potential performance.

In conclusion, while FVAL may seem promising in theory, the potential challenges in delivering consistent performance in the future, coupled with concentration risks and expense ratios, make it a hold for some investors. Considering alternatives like SPDR S&P 600 Small Cap Value ETF (SLYV) with a longer track record and a different bias may offer a more diverse investment approach. Share your thoughts on FVAL or preferred alternatives in the comments below. Thank you for reading.