Disruptive technology is manifesting in heavier use of artificial intelligence (AI), machine learning, robotics, and other advancements. This is creating the need to adjust regulations at the federal and state levels. Global firm KPMG noted this regulatory evolution in a report, which warrants a potential need for active management via the Fidelity Disruptive Technology ETF (FDTX).
As disruptive technologies grow in capability, there must be a regulatory framework in place to protect the general public. As noted in the KPMG report, this can include reducing threats of cybersecurity attacks, identity theft, and other safety risks. New laws coming into effect could significantly impact companies operating in the disruptive tech space. This warrants a flexible investment strategy.
Fidelity actively manages FDTX. This inherently gives the fund a built-in risk component, as Fidelity’s portfolio managers can adjust holdings as necessary to track current market conditions. Whether it’s to provide additional exposure to capture upside or reduce exposure to mitigate downside risk, active managers have the autonomy to make those necessary decisions.
Where Active Management Benefits
As the regulatory landscape for disruptive tech evolves, this is where FDTX can shine. If a new law comes to fruition at the federal or state level, Fidelity’s portfolio managers can reorient holdings in the fund to account for these changes. As mentioned, this can potentially capture upside in a company that’s poised to benefit from these new regulations. Additionally, it could reduce exposure to another as to minimize risk or volatility.
Per the fund description for FDTX, the companies selected as holdings are those whose operations include, but are not limited to, big data, software-as-a-service (SaaS), cybersecurity, e-commerce and consumer technologies, rideshare, and next-generation hardware. As such, there’s plenty of diversification within the disruptive sector.
Portfolio managers primarily use both fundamental and quantitative analysis to assess a company’s financial condition, industry position, and market and economic conditions. While the majority of the fund focuses on U.S. equities, it will look for opportunities outside of U.S. borders.
As of December 31, the top holdings include familiar names from the Magnificent Seven. Nvidia, Microsoft, and Amazon find themselves within the fund’s top five, which tilts the fund towards large cap growth exposure.
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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.
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