FESM: Not Impressed With This Enhanced Small Cap Blend ETF

seekingalpha08-24

FESM recently reorganized into an ETF with a 0.28% expense ratio, but this enhanced small-cap fund has an extensive track record dating back to December 2007.This analysis reveals returns that were ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2461521191?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2065647538/image_2065647538.jpg","is_english":true,"pubTime":"2024-08-24 05:49","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2461521191","market":"sg","top_or_hot":-1,"title":"FESM: Not Impressed With This Enhanced Small Cap Blend ETF","media":"seekingalpha","content":"<div>\n<p>FESM recently reorganized into an ETF with a 0.28% expense ratio, but this enhanced small-cap fund has an extensive track record dating back to December 2007.This analysis reveals returns that were ...</p>\n\n<a href=\"https://seekingalpha.com/article/4716826-fesm-not-impressed-with-this-enhanced-small-cap-blend-etf\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>FESM: Not Impressed With This Enhanced Small Cap Blend ETF</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nFESM: Not Impressed With This Enhanced Small Cap Blend ETF\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-24 05:49 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4716826-fesm-not-impressed-with-this-enhanced-small-cap-blend-etf><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>FESM recently reorganized into an ETF with a 0.28% expense ratio, but this enhanced small-cap fund has an extensive track record dating back to December 2007.This analysis reveals returns that were ...</p>\n\n<a href=\"https://seekingalpha.com/article/4716826-fesm-not-impressed-with-this-enhanced-small-cap-blend-etf\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IWM","symbol_name":"罗素2000指数ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4716826-fesm-not-impressed-with-this-enhanced-small-cap-blend-etf","article_id":"2461521191","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2065647538/image_2065647538.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2461521191","pubTimestamp":1724449759,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"FESM recently reorganized into an ETF with a 0.28% expense ratio, but this enhanced small-cap fund has an extensive track record dating back to December 2007.This analysis reveals returns that were be","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"IWM":"罗素2000指数ETF","SMLF":"iShares U.S. Small Cap Equity Factor ETF","SRTY":"罗素2000指数三倍做空ETF-ProShares","BK4534":"瑞士信贷持仓","RWM":"罗素2000指数反向ETF","BK4585":"ETF&股票定投概念","UWM":"罗素2000指数ETF两倍做多","VTWO":"Vanguard Russell 2000 ETF","TZA":"罗素2000指数三倍做空ETF","IJR":"标普小型股600指数ETF-iShares","FSMD":"Fidelity Small-Mid Multifactor ETF","BK4535":"淡马锡持仓","IWN":"罗素2000价值股指数ETF-iShares","TNA":"罗素2000指数三倍做多ETF-Direxion","SPSM":"SPDR Portfolio S&P 600 Small Cap ETF","IWO":"罗素2000成长股指数ETF","BK4588":"碎股","FESM":"FIDELITY ENHANCED SMALL CAP ETF","BK4550":"红杉资本持仓","FDN":"First Trust Dow Jones Internet I","VIOO":"Vanguard S&P Small-Cap 600 ETF","BK4581":"高盛持仓","TWM":"罗素2000指数两倍做空ETF"},"translate_title":"FESM：对这款增强型小盘股混合ETF印象不深","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"IWM":1,"VTWO":1,"VIOO":1,"SPSM":1,"SMLF":1,"IJR":1,"FSMD":1,"FDN":1,"FESM":1,"UWM":0.6,"TZA":0.6,"TWM":0.6,"TNA":0.6,"SRTY":0.6,"RWM":0.6,"IWO":0.6,"IWN":0.6,"MRTYmain":0.6,"MNQmain":0.6},"content_text":"FESM recently reorganized into an ETF with a 0.28% expense ratio, but this enhanced small-cap fund has an extensive track record dating back to December 2007.This analysis reveals returns that were better than Russell 2000 Index ETFs like IWM but worse than S&P SmallCap 600 Index ETFs like SPSM.The strategy supposedly improves the quality of the Russell 2000 Index, but I found the improvements negligible. However, its value and growth features are impressive, albeit could be temporary.Overall, I'm not too impressed with FESM. While it's superior to IWM, it's a pretty low bar, and this article lists several other small-cap blend ETFs you should consider first.   primeimages/E+ via Getty Images Investment Thesis The Fidelity Enhanced Small Cap ETF (NYSEARCA:FESM) launched on November 20, 2023, but its predecessor mutual fund has an extensive track record dating back to December 2007. With a reasonable 0.28% expense ratio and strengths in the value and growth factors, FESM will likely outperform its benchmark, the iShares Russell 2000 ETF (IWM), over the long run. However, that's setting the bar low, and I prefer the many higher-quality alternatives available in the small-cap blend space. FESM Overview Strategy and Performance According to its fact sheet, FESM is an actively managed small-cap fund that benchmarks against the Russell 2000 Index. The strategy description provided is as follows: Normally investing at least 80% of assets in common stocks included in the Russell 2000 Index, which is a market capitalization-weighted index designed to measure the performance of the small-cap segment of the U.S. equity market. Generally using computer-aided, quantitative analysis of historical valuation, growth, profitability, and other factors to select a broadly diversified group of stocks that may have the potential to provide a higher total return than that of the Russell 2000 Index. I've identified 20 small-cap blend ETFs with a ten-year track record. Sadly, FESM's 144.35% total return ranks just #13 and only 10-12% above IWM and the Vanguard Russell 2000 ETF (VTWO). Historically, the Index is a pretty easy benchmark to beat, and there are several funds with better track records and lower expense ratios you may want to look at first. The Sunday Investor For example, the iShares Core S&P Small-Cap ETF (IJR) and the Vanguard S&P Small-Cap 600 ETF (VIOO) outperformed FESM by 13-14% over the last ten years, and they track the same Index with expense ratios of just 0.06% and 0.10%, respectively. The SPDR S&P 600 Small Cap ETF (SPSM) is now the lowest-cost fund tracking this Index at 0.03%. Its long-term returns are lower, but that's because it tracked different Indexes prior to January 24, 2020. Lastly, consider FESM's 291.74% total return since December 31, 2007. It's above IWM's 255.44% but lags behind IJR's 337.93% total return. Morningstar Using this chart data, I calculated FESM's average monthly return to be 0.86% compared to 0.82% and 0.92% for IWM and IJR, so it doesn't appear the dataset is skewed for or against FESM. Furthermore, FESM's annualized standard deviation was 20.57% compared to 21.10% and 20.79% for IWM and IJR, so it doesn't seem to be any better from a risk management perspective, either. All three ETFs declined by 20-22% in March 2020 and 28-30% between October and November 2008. To summarize FESM's performance track record, it's delivered better results than its benchmark, but the Russell 2000 Index is easy to beat. Simple quality screens like the ones S&P Dow Jones Indices uses for the S&P 1500 Composite Index, which includes the S&P SmallCap 600 Index, appear sufficient. For further reading, here's a great resource describing the differences between the two benchmarks. FESM Sector Allocations and Top Ten Holdings The following table highlights the sector allocation differences between FESM, IWM, and SPSM. I've also included the Fidelity Small-Mid Multifactor ETF (FSMD) and the iShares U.S. Small-Cap Equity Factor ETF (SMLF) as comparators. These two funds select slightly larger stocks by market cap but also boost quality, something often lacking in the small-cap category. The Sunday Investor FESM and IWM are similar in terms of sector allocations, with the biggest difference being 2.36% more exposure to Technology stocks. However, both ETFs overweight Healthcare stocks. In particular, FESM and IWM have 9.50% and 9.22% allocated to the Biotechnology sub-industry compared to 2.12% for SPSM, reflecting how many of these stocks are not profitable. The fund's top ten holdings are listed below, totaling 7.89%. FESM also has 5.58% of assets on loan and 1.95% in cash. For my upcoming fundamental analysis, I've re-weighted the fund to only include common stock holdings, but I just wanted to highlight these allocations, as they are abnormally large. Fidelity The concentration of assets in the top ten is low because FESM has 576 equity holdings. Still, the fund has only a 35.10% overlap with IWM and even less with SPSM, FSMD, and SMLF (28.42%, 19.00%, 20.55%). FESM Fundamental Analysis The following table highlights selected fundamental metrics for FESM's top 25 sub-industries, totaling 61.78% of the portfolio. It's slightly more concentrated than IWM (57.22%) and SPSM (53.88%), but its weighted average market cap and five-year beta figures are about the same. The Sunday Investor Here are two additional observations to consider: 1. FESM's strategy, in part, is to \"enhance\" the Russell 2000 Index's value and growth features, and this table indicates managers have done an excellent job on that front. FESM's one-year estimated earnings per share growth rate of 12.01% is almost 5% better than IWM's and almost 8% better than SPSM's. Furthermore, it trades at just 0.92x trailing price and 8.67x trailing cash flow, both of which are competitive with IWM and at least competitive with SPSM. 2. FESM also seeks to enhance quality. However, based on its 5.88/10 sector-adjusted profit score, which I derived from Seeking Alpha Profitability Grades, the improvement is marginal and no better than what SPSM offers (5.95/10). Biotechnology (5.36/10) and Regional Banks (4.41/10) are drags on the portfolio's quality, and notably, SPSM, FSMD, and SMLF allocate between 6-9% less to these sub-industries. In addition, consider the following weighted average metrics that demonstrate how FESM actually is worse than IWM on several quality metrics. For example, its EBITDA margins are lower (12.61% vs. 15.27%), as are its net margins (4.36% vs. 5.25%). SPSM is superior across the board on all eight metrics listed, while FSMD and SMLF take quality up a level, primarily due to their larger weighted average market caps of about $7.5 billion. The Sunday Investor Depending on your circumstances, you might have little exposure to the small/mid-cap segment in the first place, in which case FSMD and SMLF would be efficient additions. I would explore this, as the quality is substantially better, and each has outperformed SPSM/IJR/VIOO with less volatility since March 2019, as follows: Portfolio Visualizer Investment Recommendation  FESM is fundamentally stronger than Russell 2000 Index ETFs like IWM. It also has a superior long-term track record on both returns and risk, so I'm confident it's the better buy. In addition, FESM sports attractive growth and value metrics, but according to the fund's prospectus, portfolio turnover has approached 100% in each of the last three years, so these features may not last long. Furthermore, FESM doesn't emphasize quality, which could be why peers like SPSM, FSMD, and SMLF outperformed. Overall, I believe FESM deserves no more than a \"hold\" rating, and I encourage you to look closer at some of the small-cap ETFs mentioned in this article before taking a position. Thank you for reading, and I look forward to your comments below.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.26.4","shortVersion":"4.26.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2461521191"}