Fund Report: Fidelity’s FDTX Disruptive Technology ETF

The world of investing is constantly evolving, and at the forefront of this change are disruptive technologies. Michael Kim, quantitative analyst and portfolio manager for Fidelity Investments' equity division, sheds light on Fidelity Disruptive Technology ETF (FDTX), a fund designed to capitalize on these transformative trends. 

Thematic Investing for Long-Term Growth

FDTX is part of Fidelity's suite of disruptive technology ETFs, "thematically aligned funds that invest in companies with innovative business models," says Kim. These funds target "emerging growth stories with strong secular tailwinds" – long-term trends that propel these companies forward. 

This approach is unique within Fidelity, relying on a collaborative effort between fundamental research, which selects promising stocks, and quantitative research, responsible for portfolio construction and risk management. Kim highlights, "The disruptive funds were some of the first ones at Fidelity to explicitly use this approach." 

Technology ETF for Investing in Innovation's Future

For investors seeking growth potential, FDTX may offer an attractive option. "We're looking for opportunities across sectors, markets, and cap ranges," explains Kim. But the unifying thread? "The one common characteristic we have among our holdings is growth potential." 

But what exactly constitutes "disruptive"? "We're looking for companies that have the potential to transform industries, challenge incumbents, create new market opportunities," says Kim. In the case of FDTX, the focus lies on themes like artificial intelligence (AI), big data, cloud computing, and consumer technology. 

Secular Tailwinds and Fidelity's Long-Term Vision

Kim emphasizes the importance of "secular tailwinds" – long-term trends driving growth. He cites the example of AI adoption rates, which, according to the US Census Bureau, were still at a low 4.8% in May 2024. However, with a significant increase from 3.7% in 2023, the potential for future growth is clear. 

This long-term outlook influences the investment horizon. "We need to give our companies the time to actually realize their potential," explains Kim. "Our historical portfolio turnover has been lower than 50% annually. We're really thinking about these investments with an investment horizon over at least a two to three-year horizon." 

Mitigating Volatility through Quantitative Techniques

Thematic investing can be volatile, which is why FDTX employs a quantitative approach for portfolio construction. "We believe that systematic processes can help deliver repeatable results on minimizing behavioral bias," says Kim. This systematic approach aims to enhance the risk-return profile of the fund. 

Fidelity Team Collaboration is Key

The success of FDTX hinges on the collaboration between the fundamental and quantitative research teams. Kim explains, "Our fundamental research team and quant team work together to identify the stocks that are thematically aligned... The fundamental team then picks the stocks and gives recommendations on which ones they like the best from their perspective. And then I take it from a quant perspective and create a portfolio." 
For retail investors interested in learning more about the FDTX ETF and Fidelity's suite of disruptive ETFs, visit fidelity.com.