Nearly halfway through 2023, a relatively unheralded ETF with under $1 billion in assets under management is the best-performing actively-managed diversified ETF this year. It’s the Fidelity Blue Chip Growth ETF (BATS:FBCG), and it’s up a scintillating 38.9% year to date. Here’s a look at why this ETF is on a tear, how it invests, and whether it could be a good addition to investors’ portfolios.
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Actively vs. Passively-Managed Funds
Before delving into the specifics of FBCG itself, let’s briefly touch on what actively managed means and the difference between actively-managed and passively-managed funds.
Nowadays, many of the market’s most-popular ETFs are passively managed, meaning that they simply track a specific index with the goal of replicating its performance before fees and expenses. Proponents say that index funds remove the room for human error.
Conversely, in an actively-managed fund, a portfolio manager or several managers actively make investment decisions in an effort to outperform a specific benchmark and generate superior returns. Actively-managed funds generally have higher turnover and more trading and are typically more expensive (in terms of fees) than passively-managed funds or index funds.
Nonetheless, index funds have grown in popularity in recent years, as research has consistently shown that most active managers fail to beat their benchmark over the long term.
What Does the FBCG ETF Do?
Now that we’ve reviewed active versus passive, let’s focus on actively-managed FBCG. With $632.6 million in assets under management (AUM), FBCG doesn’t get quite the same love from investors as some of the more popular large-cap growth ETFs out there. However, part of the reason for this is that it’s relatively new — the ETF only launched in 2020.
It normally invests at least 80% of its assets in blue-chip companies, which Fidelity Management & Research says are “well-known, well-established, and well-capitalized” companies. Fidelity says that the companies FBCG invests in typically have medium or large market caps, and they believe that they exhibit “above-average growth potential.”
Now that we know FBCG’s strategy and what it looks for in investments, what does it look like in practice?
FBCG’s Blue-Chip Portfolio
FBCG holds 162 positions, and its top 10 holdings account for 55.4% of assets.
With a focus on blue-chip, medium- and large-cap growth stocks, it’s no surprise that FBCG’s top positions are dominated by large-cap tech stocks.
Much has been made about the broader market’s gains in 2023, coming largely from the “magnificent seven” — Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), Meta Platforms (NASDAQ:META), and Tesla (NASDAQ:TSLA).
These seven stocks are also FBCG’s top seven holdings, which explains why the ETF has had such a strong performance this year. Outside of the “magnificent seven,” three more tech-oriented stocks, Marvell Technologies (NASDAQ:MRVL), Uber (NYSE:UBER), and Netflix (NASDAQ:NFLX), round out FBCG’s top holdings.
Take a look at the table below from TipRank’s holdings tool for an overview of FBCG’s top 10 holdings.
While FBCG is tech-heavy, it isn’t limited to tech stocks. Just outside the top 10, you’ll find stocks like UnitedHealth Group (NYSE:UNH), Lowe’s (NYSE:LOW), Eli Lilly (NYSE:LLY), Nike (NYSE:NKE), and Mastercard (NYSE:MA). Energy drink company Celsius Holdings (NASDAQ:CELH), which is up 136% over the past year, is also among FBCG’s holdings, so the managers are finding some strong performers beyond the “usual suspects.”
In terms of sector allocations, information technology is by far the largest sector that the fund invests in, with a 40.9% weighting (as of the end of Q1). After that, consumer discretionary accounts for a 22.9% weighting, and communications services accounts for a 13.9% weighting. All other sectors have a single-digit weighting.
Is FBCG Stock a Buy, According to Wall Street’s Top Analysts?
Turning to the opinions of Wall Street’s best-performing analysts (measured by TipRanks), FBCG has a Moderate Buy consensus rating, as 70.1% of analyst ratings are Buys, 27.2% are Holds, and 2.7% are Sells. At $32.17, the average FBCG stock price target implies 9.8% upside potential.
Paying the Price for Active Management
One downside to FBCG is that it has relatively high fees, with an expense ratio of 0.59%. This means that an investor putting $10,000 into FBCG will pay $59 in fees in year one. Over the course of a 10-year investment, assuming the expense ratio remains the same and that the fund gains 5% a year, this investor will pay $738 in fees.
In fairness to FBCG, this is an actively-managed fund, which is more expensive to run than a passive index fund, but this is still something investors need to keep in mind, as these fees add up over time.
Investor Takeaway
With large-cap tech stocks having a huge year, FBCG is in the driver’s seat, and the fund has made hay while the sun is shining with a red-hot gain of nearly 40% year-to-date. The fund has a high-quality portfolio of blue-chip stocks and a solid outlook from analysts, so there’s a lot to like here.
On the other hand, the fairly new fund hasn’t yet established much of a long-term track record, so it remains to be seen how it performs over a longer time frame. Additionally, its high fees are something that investors need to consider when investing.
Alternatively, investors who want to invest in these same types of stocks have plenty of other options that have longer track records and lower fees, such as the Invesco QQQ Trust ETF (NASDAQ:QQQ) or the Schwab U.S. Large Cap Growth ETF (NYSEARCA:SCHG).
The top 10 holdings of QQQ and SCHG have plenty of overlap with FBCG’s top 10, as all three funds hold the “magnificent seven” within their top 10 holdings, and both QQQ and SCHG are up nicely year-to-date, with total returns of 37.9% and 33.5%, respectively.
QQQ’s expense ratio of 0.2% and SCHG’s expense ratio of 0.04% are considerably lower than that of FBCG. An investor in QQQ would pay $255 in fees over a 10-year time frame, while an investor in SCHG would pay just $51 (assuming 5% annual returns).
This isn’t to say that there’s anything wrong with a more expensive, actively-managed ETF, especially one that is performing as well as FBCG. Investors interested in this style of portfolio should certainly kick the tires on it.
This ETF looks like a decent choice for investors who are interested in something actively-managed or want to simply invest in blue-chip, large-cap growth stocks and are okay with the higher expense ratio and shorter track record.
