Fidelity High Dividend ETF: Sector Allocation Changes and Improved Yield
As of Monday, Fidelity High Dividend ETF (FDVV) underwent an index reconstitution, leading to substantial sector allocation changes and an improved dividend yield of 3.22%.
Impact on FDVV’s Portfolio
The rebalancing process resulted in a shift in sector weightings, with the Technology sector experiencing the most significant decrease in exposure, while the Financials sector saw a notable increase. This sector allocation change can be seen in the following:
- Technology sector: -3.39 percentage points
- Financials sector: +3.97 percentage points
Despite these changes, FDVV’s fundamentals remain solid, with an expected earnings growth rate in the high-single-digits and a forward P/E ratio dropping from 18.00x to 16.68x.
Slight Deterioration in Quality
The increased exposure to Financials sector stocks has led to a slight deterioration in certain quality metrics, such as return on assets (ROA), which tend to be lower in this sector. However, it’s important to note that FDVV’s overall quality rating still ranks above average compared to other ETFs in its class.
Effect on Individual Investors
For individual investors holding FDVV in their portfolios, these changes may impact their overall sector allocation and potential returns. If an investor is heavily weighted in the Technology sector, they may experience a decrease in performance due to FDVV’s reduced exposure. Conversely, investors with a preference for the Financials sector may see a positive impact from FDVV’s increased allocation to this sector.
Effect on the World
On a larger scale, these sector allocation changes in FDVV may reflect broader trends in the global economy. The decrease in Technology sector exposure could signal a potential shift away from growth-oriented stocks, while the increase in Financials sector stocks may indicate a renewed focus on value stocks and sectors that generate consistent dividends. It’s important for investors to keep an eye on these trends and adjust their portfolios accordingly.
Conclusion
Fidelity High Dividend ETF’s (FDVV) index reconstitution resulted in significant sector allocation changes and an improved dividend yield. While these changes may lead to a slight deterioration in quality, FDVV’s fundamentals remain solid with a high-single-digit expected earnings growth rate and a lowered forward P/E ratio. For individual investors, these changes may impact their overall sector allocation and potential returns. On a larger scale, these trends may reflect broader shifts in the global economy, emphasizing the importance of staying informed and adjusting portfolios accordingly.
