VettaFi’s Midyear Market Outlook symposium Thursday saw industry leaders take on the big questions. Where is the market going? How should investors and advisors navigate uncertainty and potential volatility? Leaders from Fidelity Investments and Invesco both joined for one of the early segments, focused on innovative U.S. strategies.
Key Takeaways:
Fidelity Investments and Invesco leaders joined VettaFi’s Midyear Outlook symposium to discuss what the rest of the year holds.
Fidelity’s Treacy and Invesco’s Schroeder discussed the continued geopolitical and concentration risk as issues to watch.
Both provided some examples of funds that could help address just that.
The segment, hosted by VettaFi Head of Research Todd Rosenbluth, included thoughts from Fidelity Investments Institutional Portfolio Manager Benjamin Treacy, CFA, and Invesco Director, Factor and QQQ Equity Product Strategy Paul Schroeder. The duo spoke to Rosenbluth about a myriad of topics looming over the second half.
Prompted by Rosenbluth, both spoke to what caught their eye to start the year. For Treacy, the resilience of markets despite geopolitical and inflationary headwinds stood out. The rise of small-caps despite those headwinds, too, piqued his interest.
“The rise in small-caps versus large-caps, we haven’t seen that in quite a while, but over the last year, small-caps have been quite strong,” Treacy said. “We’ve seen an improvement in the earnings picture there, which I think has helped drive some of that outperformance versus large.”
Schroeder, meanwhile, spoke to the VIX as a measure of the volatility from those headwinds. While markets have done well, he said, the underlying risk tension has stood out to him.
“So even though we’ve seen strong index performance at the top, there’s been a lot of churning and shifts in leadership underneath that have really provided for a lot of exciting conversations,” Schroeder said.
Both firm leaders pointed to small- and mid-cap stocks picking up steam. Treacy emphasized the growth in conversations on that space of late than 12 months prior. Schroeder, meanwhile, grounded that interest amid a contrast between the Magnificent Seven — down almost 5% on the year — and the overall U.S. market. Measured by the S&P 500, for example, the market is up 8%, he said. That tipped Schroeder to underscore his firm’s equal weight fund.
Treacy, meanwhile, spoke to Fidelity Investments’ fundamental suite of ETFs. That suite, which has grown with new international offerings in recent years, offers actively managed ETFs “that look to beat our benchmarks by actively selecting securities,” he said. Treacy spoke to funds like the Fidelity Fundamental Large Cap Core ETF (FFLC).
“They are multi-manager ETFs,” he said. “So each one of these is being managed and we’re selecting stocks based on the insights and conviction levels that we get from our fundamental portfolio managers here at Fidelity.”
“It’s not just small, it’s not just mid, it’s small and mid,” he said. “So it allows us to buy companies…across a very wide swath of the market, right?”
“This portfolio leverages the insights of 12 different portfolio managers at Fidelity that run small- and mid-cap portfolios,” he added. “We have an expert in midcap growth stocks, so we leverage their conviction as well as mid-cap value and small-cap growth and small-cap value.”
The Fidelity Fundamental Large Cap Growth ETF (FFLG), meanwhile, also offers an active approach. That helps the fund diverge from the benchmark where needed — helping adapt to changes with, for example, the Magnificent Seven.
“So take the Mag Seven… We have actually been a little bit underweight the Mag Seven as a group, but that’s not to say we don’t own any of them,” he said. “We pick and choose and we own where we think we have the strongest conviction… And we think the fundamentals are the strongest in the portfolio.”
FFLG charges 38 bps and has returned 29.6% over the last 12 months. FFSM, meanwhile, has returned 39.9% in the same time.
Looking ahead, both firm leaders made the case for strategies that can add a bit more differentiation. By leaning on fundamentals, those strategies can help portfolios handle those churning risks under the hood.
“I think as an active manager, so forgive me for being a little bit biased, but we are very much believers in the strength of active management,” Treacy said. “I think just what the indexes are doing or have done isn’t the whole story. And to be able to have disciplined active management approaches in these areas like we do, I think is important to think about.”
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
