Fidelity Leveraged ETFs for Transparency in Wealth Management

Fidelity offers a range of leveraged ETFs that can help you grow your wealth more efficiently.

These ETFs use various strategies to amplify returns, including the use of derivatives and other financial instruments.

Fidelity's leveraged ETFs are designed to provide transparency in their investment strategies, making it easier for you to understand how your money is being used.

This transparency is achieved through regular portfolio holdings disclosures, which are updated daily.

Leverage is a powerful tool in investing, but it's essential to understand what it means and how it works.

Leverage simply means that an investment portfolio is larger than its net asset base. This is achieved by raising additional capital through debt issuance, preferred share issuance, or using sophisticated financial products to increase the value of the underlying portfolio.

A fund with net assets of $500 million can issue $250 million of preferred shares, increasing its total capital to $750 million. This gives the fund a leverage ratio of 50%, calculated as the capital from preferred shares divided by net asset value.

For another approach, see: Dividend Preferred

Leverage magnifies returns, both positively and negatively. In other words, a leveraged fund exhibits more volatility than would an unleveraged fund investing in the same securities.

Here's a simple example of how leverage affects returns:

As you can see, the leveraged fund has a higher return, but it also has a higher risk. Leveraged funds can lead to higher distribution rates, as the underlying yield can be magnified through leveraged assets.

For your interest: Higher Expected Returns on Investment Will

The expense ratio for Fidelity Leveraged Company Stock is 0.70%, which is 17% lower than its category average, making it a C grade. This is still higher than what you'd expect from a passive index fund.

High portfolio turnover can be a problem, as it translates to higher expenses and lower aftertax returns. Fidelity Leveraged Company Stock has a portfolio turnover rate of 50%, compared to an average of 44% for the Large Blend category.

The fund has a return of 5.0% in January 2025, earning it an A grade. This is higher than the category average return of 3.4%.

Here's a comparison of the fund's expense ratio and portfolio turnover rate with its category average:

The fund is managed by two managers, with the longest tenure being 8.4 years.

Market volatility can be a major challenge for investors, especially when using leveraged ETFs. A flat and volatile grid, where the market is up 10% and then down 10% for 10 days, can result in a 4.9% cumulative loss over the period.

This type of volatility can be particularly damaging to leveraged ETFs, which can experience a 18.46% loss in value over the same period. The key takeaway is that market volatility can have a significant impact on the performance of leveraged ETFs.

Here's a breakdown of the daily market performance and the corresponding impact on the leveraged ETF:

In this scenario, the daily market performance is constantly flipping between up and down, resulting in a significant loss in value for the leveraged ETF. This type of volatility highlights the importance of timing and positioning when using leveraged ETFs.

Fidelity's leveraged ETFs are designed to provide transparency in their investment strategies, allowing investors to make informed decisions about their portfolios.

The underlying assets of Fidelity's leveraged ETFs are publicly disclosed, enabling investors to review and understand the risks associated with their investments.

Fidelity's leveraged ETFs use a combination of futures and options to achieve their investment objectives, which can be a complex process but one that provides transparency into the underlying assets.

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Transparency in wealth management is crucial, especially when it comes to leverage. Leverage can have significant effects on a portfolio, regardless of its source.

Leverage is often hidden in plain sight, and fund families have discretion in how they report it. Only '40 Act leverage is required by law to be reported.

To check leverage ratios, use the simple formula: total leverage = total assets / net assets. This will give you a clear picture of a fund's true leverage.

Fund families may claim a fund is unleveraged on their website, but in reality, it may have a lot of non-'40 Act leverage. This is why it's essential to dig deeper and check the financial statements.

You can locate ratio information for a specific CEF by going to an ETF Research Center, entering the symbol, and finding the Composition or Statistics tabs.

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In the world of wealth management, transparency is key. ETPs are subject to market volatility and the risks of their underlying securities.

Investing in smaller companies can be particularly risky, as they often have less financial stability and may be more vulnerable to economic downturns. Foreign securities come with their own set of risks, including interest rate, currency exchange rate, economic, and political risks.

Emerging markets can magnify these risks, making it essential to carefully consider the potential consequences of investing in these areas. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility.

Investors should be aware that ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks due to fees, expenses, and tracking error.

This can result in a premium or discount to the ETP's net asset value (NAV), making it essential to carefully review the prospectus and offering circular before making investment decisions.

Fidelity Leveraged Company Stock is an actively managed U.S. Equity Large Blend fund, launched by Fidelity Investments in 2000. The investment seeks capital appreciation.

The fund normally invests at least 80% of its assets in stocks, primarily in common stocks of leveraged companies. It may also invest in lower-quality debt securities and foreign issuers.

Here are the top 10 holdings in the fund, which constitute 31.3% of its assets:

The fund has a diversified portfolio with 99 securities, and its top 10 holdings account for 31.3% of its assets.

If you're looking for top-performing ETFs, Fidelity's large blend offerings are worth considering.

Matthew 25 (MXXVX) has been the best performer in the large blend category over the last year, with a return of 34.6%.

Midas Magic (MISEX) follows closely behind with a return of 33.3%.

Fidelity Leveraged Company Stock (FLVCX) and Fidelity Advisor Leveraged CoStock Z (FLEOX) are also notable, with returns of 31.4% and 31.3% respectively.

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GQG Partners US Select Quality Eq Inv (GQEPX) rounds out the top five with a return of 31.0%.

Here are the top-performing ETFs in the large blend category over the last year: