Fidelity Fundamental Small-Mid Cap ETF up 23% YTD

On the ETF of the Week podcast in early July, VettaFi head of research Todd Rosenbluth and host Chuck Jaffe examined the Fidelity Fundamental Small-Mid Cap ETF (FFSM). Rosenbluth highlighted the fund’s fundamentals-driven active approach and reported that it has risen more than 23% year to date.

Rosenbluth explained advisors showed rising interest in small- and mid-cap strategies entering the second half of the year. He noted smaller U.S. companies tend to earn a larger share of revenue domestically, which affects demand for U.S.-focused small-cap exposure.

Market figures mentioned on the episode put broad U.S. small caps up roughly 15% to 16% year to date, while FFSM has outperformed that cohort. Rosenbluth attributed part of FFSM’s recent performance to concentrated overweight positions in selected stocks.

FFSM combines stock selections from Fidelity’s active mutual fund managers with a quantitative overlay inside an ETF wrapper. The fund is fully transparent and charges about 0.43% in annual fees.

The hosts contrasted FFSM’s bottom-up, fundamentals-based process with cap-weighted benchmarks such as the Russell 2000, which weights holdings by market capitalization and does not exclude unprofitable companies. The panel noted a recent Russell rebalance can introduce more unprofitable firms into index-linked funds.

Independent ratings referenced during the discussion assigned high marks to FFSM for total return, consistency of returns and tax efficiency, and a low mark for preservation of capital. Jaffe drew attention to the difference between the fund’s consistency score and its capital preservation rating.

Rosenbluth said active managers can adjust holdings during the year based on company-level fundamentals, which he described as important when rallies lift unprofitable names. He also noted that small- and mid-cap allocations typically carry higher volatility than large-cap portfolios.

The discussion identified two portfolio roles for FFSM: a primary small-/mid-cap allocation for investors lacking exposure or an active complement to index-based small-cap holdings. The episode also noted the ETF structure can offer tax-efficiency advantages compared with an actively managed mutual fund.