I wrote Outperforming Actively Managed ETFs last month in the Mutual Fund Observer Newsletter and described Fidelity New Millenium Fund (FMIL) in my “Short List of Great Owl Funds”, but before the newsletter was published, FMIL just up and disappeared! Several members brought it up in the Discussion Board – FMIL Confusion. Fortunately, Charles Boccadoro has solved the mystery by finding “Q&A: Fidelity to Introduce Fundamental Active ETF Suite”.
Fidelity New Millennium ETF (FMIL) has gotten a new name, “Fidelity Fundamental Large Cap Core ETF (FFLC)” under new management with lower fees. FFLC is also transparent which means that you can see what it is invested in daily while FMIL was not. FFLC is part of the new Fidelity Fundamental suite which seeks to “deliver new opportunities and value… while also expanding our investment options to help meet demand for access to equity strategies…”
Upon a little more research, Fidelity rolled out the new “Fundamental” Suite of funds on February 14th. The purpose of creating this new suite was described by Greg Friedman, Fidelity’s Head of ETF Management and Strategy as, “This launch builds on our legacy of active management through the ETF wrapper, as we continue to leverage both our fundamental approach along with quantitative construction techniques.”
I trust Fidelity to develop new technology and products; however, I am not satisfied with this rollout. I wrote Fidelity Actively Managed New Millennium ETF (FMIL) for the September 2022 MFO newsletter which compared FMIL to its mutual fund counterpart, FMILX. One of the drawbacks as noted by Morningstar is that the FMILX strategy is “contrarian, valuation-conscious approach is distinctive but lacks consistency over time and warrants an Average Process rating…” Okay, there is room for improvement in FMIL.
Change is good – that is good change is good while change for the sake of change is often disruptive. I have changed my investment strategy over my investing lifecycle, some for the good and some not so good. I now invest through Fidelity and Vanguard and use their wealth management services to manage over half of our investments. In particular, I have rationalized taxes as part of my bucket approach. My allocation to stock has increased, and I do less trading and more investing for the long term. This past month, I added to my positions in American Century Avantis All Equity Markets ETF (AVGE) to get closer to my desired allocation. I like the diversification of AVGE.
I had FMIL on my short list of funds that I may want to buy for the long term. As bond ladders mature, I may be looking for an additional fund such as FMIL – Oops! – FFLC to add. What is this new creature?
Fidelity Fundamental Large Cap Core ETF (FFLC)
Fidelity Fundamental Large Cap Core ETF seeks long-term growth of capital. The ETF will normally invest at least 80% of assets in equity securities of companies with large market capitalizations, which for purposes of the fund, are those companies with market capitalizations similar to companies in the Russell 1000 Index or the S&P 500 Index.
Okay, this description is not very helpful. What does Fidelity say about the “Fundamental” suites?
The Fundamental ETFs are designed to provide investors access to Fidelity’s industry leading active management and bottom up research capabilities across the equity investment universe. The investment process applies a quantitative portfolio construction process that seeks to extract and combine the highest conviction investment ideas from multiple Fidelity portfolio managers within a respective asset category, market cap, or style and then optimize the portfolio to ensure style box consistency through a defined risk management process. These investment options not only look to capture Fidelity’s highest conviction ideas within these areas, but also look to deliver strong risk-adjusted returns over the long-term while serving as core equity building blocks.
Again, this description is not informative enough for me to invest my hard-earned money, but it has piqued my interest. Let’s take a look at the Prospectus.
Using an investment process that starts with fundamental analyst research and security recommendations, and reference portfolios managed by Fidelity Management & Research Company LLC (FMR) (the Adviser) that are based on fundamental analysis, and then applying a quantitative portfolio construction process designed to emphasize securities in which the Adviser has high conviction subject to appropriate security and portfolio-level risk, liquidity, and trading characteristics.
…Prior to February 26, 2024, the fund was named Fidelity ® New Millennium ETF, and the fund operated under certain different investment policies. The fund’s historical performance may not represent its current investment policies.
But I liked FMIL! Will I be disappointed in FFLC or like it better? I compared data from the MFO MultiSearch tool for FMIL that I had saved to FFLC. Even though the fund has changed, the history of FMIL has transferred to FFLC with the update for fund fees and managers. The Fundamental suite also offers growth, value, and small-cap versions, but as someone trying to simplify, I prefer a core approach, but a tilt toward value has potential.
From “Outperforming Actively Managed ETFs”, I used Portfolio Visualizer to create a portfolio of actively managed ETFs to maximize the Sharpe Ratio (volatility adjusted returns) as shown below. To select my next fund, I will consider FFLC among other actively managed ETFs but will take into account that only the information after February 2024 is representative of the new strategy.
So, the mystery of the disappearance of FMIL has been solved. I would have preferred more advance notice of impending changes. Perhaps it was kept quiet as part of a competitive strategy? I will follow its replacement, FFLC, with interest, but as always, a cautious skepticism.
By the way, I did sign up for the Fidelity Newsroom Alerts.