FESM Profile
The Fidelity Covington Trust - Enhanced Small Cap ETF is designed to seek capital appreciation by investing primarily in common stocks that are part of the Russell 2000 Index. This index is a widely recognized benchmark that represents the performance of the small-cap segment of the U.S. equity market. The fund aims to capture the growth potential of smaller companies, which are typically characterized by their potential for higher growth compared to larger, more established firms. In addition to U.S. small-cap stocks, the fund may also invest in foreign equities to further diversify its portfolio and enhance returns.
To achieve its investment objectives, the fund employs a sophisticated, computer-aided quantitative analysis approach. This strategy involves assessing various financial metrics, including historical valuation, growth rates, profitability, and other key factors. By utilizing advanced data analysis techniques, the fund seeks to identify stocks that may offer superior returns relative to the Russell 2000 Index. This approach is intended to provide investors with potential capital growth that exceeds the performance of the benchmark index.
In addition to its primary focus on capital appreciation, the Fidelity Covington Trust - Enhanced Small Cap ETF also engages in securities lending. This income-generating strategy involves lending securities from the fund’s portfolio to other institutions in exchange for a fee. The additional income from securities lending can contribute to the fund’s overall yield, providing investors with an extra source of return beyond capital gains.
The ETF was initially launched as the Fidelity Small Cap Enhanced Index Fund and transitioned to its current actively managed ETF structure with approximately $435 million in net assets. This conversion allows the fund to benefit from the flexibility and liquidity of the ETF format while continuing to leverage its proven investment strategy. The Enhanced Small Cap ETF is suitable for investors seeking exposure to small-cap stocks with the potential for higher returns, coupled with the added benefit of income from securities lending.
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