ETF Insights Report – Fidelity All-in-One Equity ETF – NO:FEQT

Fidelity All-in-One Equity ETF – FEQT.NO

The Fund aims to achieve capital growth through total returns by using a strategic asset allocation approach. It invests primarily in Underlying Fidelity ETFs that provide exposure to a diversified portfolio of global equity securities. This fund’s primary strategy is to be an all-in-one fund that focuses on factors like low volatility, momentum, and value.

Focus area	Score	★★★★★
Performance (CAGR)	15.5%	★★★★★
Fees (MER)	0.44%	★★
Volatility (Beta)	NA	★★★★★
Distribution (Yield)	0.92%	★
Valuation (Forward P/E)	16.4	★★★
5-year earnings growth	6.85%	★★★

Pros

The best-performing all-in-one fund in Canada today
Although fees are double any other all-in-one ETF, its performance has more than made up for it
The fund utilizes a popular strategy that I like, which is “factor investing.” It utilizes factors that are known drivers of strong stock performance to select its holdings
Additional exposure to cryptocurrency for those who don’t feel comfortable buying it on their own

Cons

The fund will be more volatile than other all-in-one funds due to its exposure to cryptocurrency and momentum ETFs
The fund is relatively young, and its outperformance moving forward is far from guaranteed

All-in-one ETFs are all the rage right now, and for good reason. They give investors single-click exposure to a diverse set of holdings globally.

However, the biggest mistake investors can make is thinking that all of these all-in-one funds are the same. Each one of them brings a different element to the table. In FEQT’s case, I really like the way the fund is structured to outperform the other AIO ETFs by utilizing one of my favourite investing strategies, that is, factor investing.

Factor investing is taking a specific set of criteria that has been historically correlated with strong market performance. There are a multitude of factor strategies, including low volatility, value, high quality, and momentum. Fidelity utilizes practically all of these strategies inside of its fund.

The fund is an “ETF of ETFs,” meaning it doesn’t hold any stocks directly, just individual Fidelity ETFs. These ETFs are from a wide variety of factor strategies noted above. In addition to this, it owns a small 5%~ allocation to cryptocurrency, which is what I have often quoted as the optimal allocation to a speculative asset like Bitcoin.

Although crypto exposure may deter some from investing in the fund, which is completely fair, it would be a benefit to many who want cryptocurrency exposure but are unsure how to get it.

I’ll dive more into the individual strategy of this ETF in the top holdings section.

For now, all you need to know is it aims to give you the exact same broad market exposure as any of the other all in one ETFs, except for the fact that instead of buying the broad indexes and holding them, it isolates specific indicators on the market that have often led to outperformance.

Sector Risk	Low
Concentration Risk	Low
Geographical Risk	Low
Liquidity Risk	Low

Because this fund is exposed to factor-based strategies like momentum and cryptocurrency, it is highly likely it will be more volatile than many of the other major all-in-one ETFs. Because the fund has not been around that long, I do not have accurate beta and volatility information for it, so this is an assumption. But, it is an assumption based on the historical volatility of the underlying strategies the fund holds.

In addition to this, I felt I would isolate the cryptocurrency risk and speak on it individually. Not everyone will be comfortable holding crypto exposure.

Although FEQT holds exposure to what many believe to be the “blue-chip” of cryptocurrencies, Bitcoin is still highly volatile. Although there isn’t an oversized position inside the portfolio, typically around 5%, if Bitcoin struggles, it could result in an overall underperformance of the fund relative to the other all-in-one funds, even with a 5% allocation.

Why am I saying this? Primarily because Bitcoin is known to go through 50%+ downswings, and although a 5% allocation would be deemed relatively conservative, with the added volatility, it has a chance to have big impacts on the fund’s returns, both to the upside and downside.

And finally, although factor investing has been proven to provide higher returns historically, there is no guarantee it will do so in the future.

Top 10 Holdings	Allocation
Fidelity US Momentum ETF (FCMO.NO)	12.5%
Fidelity US High Quality ETF (FCUQ.TO)	12%
Fidelity US Low Volatility ETF (FCUL.NO)	12%
Fidelity US Value ETF (FCUV.TO)	11.5%
Fidelity Canadian Momentum ETF (FCCM.NO)	5.9%
Fidelity Canadian High Quality ETF (FCCQ.TO)	5.9%
Fidelity International Momentum ETF (FCIM.NO)	5.9%
Fidelity Canadian Low Volatility ETF (FCCL.NO)	5.8%
Fidelity International Low Vol ETF (FCIL.NO)	5.8%
Fidelity Canadian Value ETF (FCCV.TO)	5.8%

As I’ve mentioned earlier in the report, you can probably notice from the top ten holdings here that it looks different from your typical all-in-one ETF. The largest holdings inside this fund are going to be 4 United States-based factor funds: a momentum fund, a high-quality fund, a value fund, and a low-volatility fund.

Outside of that, we repeat the process with Canada, and we have a few international ETFs sprinkled in. Keep in mind that there are some holdings outside of this top 10, primarily other international factor funds, along with the crypto exposure.

Momentum ETFs are those that identify stocks that are currently undergoing positive momentum share price-wise. The momentum strategy is a simple one: stocks that are undergoing an upward trend in share price tend to continue doing so over the short term. These ETFs aim to take advantage of that and will remove stocks from the index if they fail to meet the criteria.

The high-quality funds will go through a strict set of criteria, primarily revolving around returns on equity, returns on invested capital, earnings growth, and debt to equity. If the companies meet the thresholds of the fund, they’re included in the index.

The low-volatility funds will identify stocks that have low betas and place them in the fund. Beta is a measure of stock volatility. A beta of 1 means that a stock generally moves at the same pace as the market. A beta of 2 will mean it is twice as volatile as the market, while a beta of 0.5 suggests the stock is half as volatile as the market.

If we put this into perspective with numbers, if the market goes up by 1%, a stock with a beta of 1 should go up by 1%. A stock with a beta of 2 should go up 2%, while a stock with a beta of 0.5 should go up 0.5%. On the opposite end of the spectrum, if the markets fall, the same percentages will apply for losses. Obviously, daily swings make this not a guarantee, and for that reason beta is often measured over long periods of time.

Overall, the fund utilizes all these factors to build what it believes is a strong portfolio of holdings that give the investor global equity exposure and the chance to outperform the markets.

	FEQT	VEQT	XEQT
Returns	✅
Diversification		✅	✅
Fees			✅
Tax efficiency	✅	✅	✅
Distribution			✅

FEQT is an interesting ETF. If you look to the comparison chart above, you’d believe XEQT to be the superior option. Which, for those who like a more diverse set of holdings and a standard all-in-one ETF, it might be. But, there is no doubt that FEQT has been the superior ETF when it comes to the most important element of them all, which is returns.

One could argue that FEQT deserves the checkmark when it comes to fees as well. Despite the fees being 2.5X that of XEQT, FEQT has driven much higher returns net of fees.

Overall, the objective of all of these funds is to give investors exposure to global equities with a single click. The way they get there, though, is different. For those who are willing to take on a little more volatility and higher fees for the chance of higher returns, FEQT makes a big case that it is the best option. If you’re looking for a plain vanilla-type all-in-one ETF, you can’t really go wrong with any of the others.

Yield	0.92%
Payout frequency	Annually

All of the AIO ETFs available in Canada are structured to be total return ETFs. If you’re an investor that is insistent on generating income from your investments, you likely won’t find these attractive.

In the case of FEQT, it provides the lowest yield out of any of the all-in-one funds at around 1%. This is likely due to the factor-based strategy it utilizes.

Because of its broad base of holdings, you will get a wide variety of income from a taxation perspective: capital gains, dividends, foreign income, etc. It is going to have a similar tax profile to a lot of the all-in-one funds here in Canada, but I would expect it to possibly generate a bit more on the capital gain side because there will likely be more turnover in terms of overall holdings in the fund.

This, again, is due to the factor-based nature of the fund, which will likely involve stocks being added/removed from the underlying ETFs due to the criteria set inside of them.

Prior to digging deep into the all-in-one ETFs, I would have viewed XEQT as the superior option. However, at this point in time, I believe FEQT to be one of the best all-in-one options available to investors who are willing to take on a bit of added risk and volatility in an attempt to realize higher returns.

There is a stigma in place when it comes to actively managed funds. A large amount of data cites how badly they tend to underperform over the long term, and with FEQT being actively managed, that blanket statement is applied to the fund. However, the underlying holdings of this fund are ETFs that track indexes based on factor elements. These elements have, in the past, provided larger returns.

If you want a fund with absolutely no surprises and one that will track the global markets relatively well, XEQT is still a solid option. However, if you want a fund that separates itself from the rest in terms of overall strategy by utilizing factor-based elements that have historically led to larger returns, FEQT is a rock-solid option.

Although it is never a guarantee, I believe there is a good chance FEQT will continue to outperform the other all-in-one ETFs due to the factor strategy deployed by the fund. While XEQT contains 10,000+ holdings, largely from holding ETFs that track broader indexes, FEQT narrows down its options and contains the same international exposure in a more concentrated, higher-quality basket of holdings.

It isn’t doing this via active management either. It is doing so with a strict set of criteria that, as mentioned, has historically led to larger returns.

The added crypto exposure in the fund is something that many people may not be comfortable with. This will depend on your overall risk tolerance and opinions on crypto in general. In my opinion, I believe long-term exposure to crypto will provide solid returns. The overall allocation is small enough that if it didn’t come to fruition, it may result in underperformance but would not have a material impact to the fund’s assets.

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