🧬Factor Investing Decoded: Why FVAL's Value Strategy Still Matters in 2025

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Hello, ETF enthusiasts! Welcome back to another insightful exploration of the ETF universe. Today, we're focusing on a fund that exemplifies one of investing's most reliable strategies: the Fidelity Value Factor ETF $FVAL ( ▲ 0.03% ) . In a market where growth stocks often dominate the headlines, value investing remains a fundamental strategy that has consistently provided results for patient investors. Let's take a closer look at what drives FVAL and determine whether it should be included in your portfolio.

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What is FVAL?

Before we explore FVAL specifically, let's establish our foundation by understanding factor investing and why the value factor reigns supreme among institutional investors.

Factor investing is an investment strategy that focuses on specific, quantifiable characteristics of securities that influence returns over time. It employs various factors, including macroeconomic, fundamental, and statistical elements, to analyse asset prices and inform investment decisions.

There are two main types of factors: macroeconomic factors, which address broad risks across asset classes, and style factors, which explain returns and risks within specific asset classes. Key style factors include value, momentum, quality, size, and low volatility.

The value factor is a key investment strategy based on the idea that when a company's fundamentals weaken, the market may overreact and undervalue its stock compared to its earnings. This concept, originating from Benjamin Graham and David Dodd in the 1930s, has been widely supported by academic research.

FVAL seeks to match the performance of the Fidelity U.S. Value Factor Index before fees and expenses. The Fidelity U.S. Value Factor Index tracks the performance of stocks from large and mid-capitalisation U.S. companies that exhibit attractive valuations. Essentially, FVAL acts as a systematic value hunter, using quantitative metrics to identify stocks trading below their intrinsic worth across the large and mid-cap universe.

Investment Strategy📊

Smart ETF investors understand that individual funds are building blocks, not standalone solutions. Here's how FVAL can enhance your portfolio construction:

• 🛰️Core-Satellite Strategy: FVAL works brilliantly as a satellite holding around a broad market core. Consider pairing it with a total market ETF, such as VTI, or a core S&P 500 fund. This approach gives you market exposure while tilting toward value characteristics that have historically outperformed.

• ⚖️Factor Diversification: Value investing tends to shine during different market cycles than growth strategies. For example, an investor working at a large technology company may look to add a value ETF to help offset the overweight growth they currently have from their company's stock. If your portfolio leans heavily toward growth or technology stocks, FVAL provides natural diversification.

• 🧭Tactical Allocation: Value stocks often outperform during periods of economic recovery and rising interest rates. Investors can tactically increase their FVAL allocation when they believe market conditions favour value characteristics.

• 🧩Multi-Factor Approach: Consider combining FVAL with other factor ETFs to create a diversified portfolio. You might pair it with a momentum fund during market uptrends or combine it with a quality factor ETF to target high-quality value stocks specifically.

• 🌍International Diversification: While FVAL focuses on U.S. stocks, you can complement it with international value ETFs to capture value premiums globally.

A typical implementation might allocate 70% to broad market exposure, 15% to FVAL for value tilt, and 15% to other factor exposures or sectors based on your investment thesis.

FVAL at a glance

ETF Issuer: Fidelity

Inception: 2016-09-12

Asset Class: Equity

Underlying Index: Fidelity U.S. Value Factor Index

Geographical Focus: U.S.

Expense Ratio: 0.16% (as of last data point)

Dividend Yield: 1.62% (as of last data point)

Distribution Frequency: Quarterly

Historical Performance

Let's take a look at the performance of Fidelity Value Factor ETF: Over the past 12 months, FVAL has risen by 10.34%.

The fund shows typical equity volatility, but its sector allocation stands out. Approximately 30.41% of its portfolio is allocated to the Information Technology sector, which distinguishes it from traditional value ETFs that typically underweight technology.

FVAL's concentrated approach is evident, with its top 10 holdings accounting for approximately 38.4% of total assets. Notably, Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Nvidia Corp. (NVDA) are among the top three holdings.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest

1. Factor-Based Precision at a Reasonable Cost: Annual operating expenses for FVAL are 0.16%, making it one of the more cost-effective products in the space. This expense ratio strikes an excellent balance between factor sophistication and cost efficiency. You're getting systematic value exposure without paying active management fees.

2. Professional-Grade Implementation: With about 131 holdings, it effectively diversifies company-specific risk. FVAL provides systematic exposure to value characteristics across a diversified portfolio, eliminating the need for individual stock selection while maintaining factor purity.

3. Income Generation with Growth Potential: It has a 12-month trailing dividend yield of 1.62%. This yield provides steady income while you wait for value stocks to be recognised by the market, creating a total return opportunity from both income and capital appreciation.

Top 3 Reasons Not to Invest

1. Concentration Risk: The fund owns 131 securities, making it a less diversified option. This concentration in fewer holdings means FVAL may experience higher volatility than broader value ETFs, particularly during events that affect individual stocks.

2. Sector Allocation Unusual for Value: FVAL also had a significantly heavier weighting toward technology than its competitors, which tend to lean toward the healthcare and financial sectors. This tech concentration means FVAL may not provide the traditional value characteristics some investors expect.

3. Not a Complete Solution: Like many single-factor funds, FVAL may not be sufficiently diversified to stand alone as a core U.S. equity holding. Investors need additional holdings to build a complete portfolio, making FVAL more of a building block than a standalone solution.

💰The Value Opportunity

FVAL represents a refined approach to value investing within the modern ETF landscape. By systematically targeting undervalued large and mid-cap U.S. companies, FVAL provides investors with a research-backed strategy that combines institutional quality with accessibility for retail investors.

In summary, FVAL is an excellent choice for investors seeking factor-based diversification, reasonable costs, and exposure to one of the most reliable investment strategies. However, it requires patience, an appropriate portfolio context, and realistic expectations regarding the cyclical nature of value investing.

Successful ETF investing is not just about finding the perfect fund; it's about combining funds that align with your financial goals and risk tolerance. If you're ready to learn more, consider subscribing our ETFUNO newsletter. You'll gain insights, strategies, and support from knowledgeable investors as we explore the ETF landscape together. Let's invest smarter!

DISCLAIMER: This article is for informational purposes only and should not be considered as investment advice. Always conduct your own research and consult with a financial advisor before making investment decisions.