New York, New York – The world of growth exchange-traded funds (ETFs) is vast and diverse, offering investors a myriad of options to consider. One such ETF that emerged in mid-2020 is the Fidelity Blue Chip Growth ETF (FBCG). With a portfolio size of $1.9 billion, FBCG focuses on over 200 established domestic stocks, predominantly large-cap companies. The fund’s primary goal is to identify growth stocks with strong business models, solid pricing power, competitive advantages, and capable management teams dedicated to driving earnings growth over time. On the surface, FBCG may seem like an attractive investment, but a closer look reveals some concerns.
In comparison to the well-established iShares Russell 1000 Growth ETF (IWF), FBCG has shown a slight outperformance since its inception in June 2020. However, this outperformance has not been consistent, with periods of underperformance also observed. One notable area of concern is the level of risk FBCG takes to achieve its returns. The fund has maintained a higher volatility profile compared to IWF, which may impact its overall risk-adjusted return potential.
Another point of contention is the expense ratio of FBCG, which stands at 0.59%, significantly higher than IWF’s 0.19%. Despite the higher fees, FBCG does not offer any dividends to investors. Additionally, FBCG’s concentration in a smaller group of stocks (around 200 compared to IWF’s 444) can lead to higher turnover and potential risks associated with more frequent trading activity.
Looking at the long-term earnings growth potential, IWF’s holdings are expected to deliver higher growth compared to FBCG’s stocks. This disparity raises questions about FBCG’s ability to generate sustainable growth for investors. The fund’s heavy focus on tech stocks, accounting for 44% of its portfolio, raises concerns about potential overvaluation in this sector, especially considering the recent underperformance of tech stocks in the market.
Moreover, the market’s current favoritism towards growth stocks over value stocks, as evident in Fidelity’s ETFs, poses a risk for investors. The relative strength ratio between growth and value stocks is at record highs, signaling a potential shift in market dynamics that could impact FBCG’s performance. Overall, while FBCG may have shown some initial promise, its concentration in certain sectors and stocks, coupled with market trends and risk factors, warrant careful consideration before making any investment decisions in this ETF.
