Investor sentiment around the potential for interest rate cuts later this year rose in mid-May after April’s CPI print came in line with expectations. Alongside easing inflation, several economic indicators signal the possibility of declining inflationary pressure. While a boon for inflation, economic slowing creates challenges for equities and investors alike, potentially increasing the appeal of the potentially reliable performance of blue-chip companies.
The Dow Jones Industrial Average climbed to new record highs in mid-May as equities rallied on April’s CPI. The blue chip index crossed 40,000 for the first time before retreating slightly. However, manufacturing output fell 0.3% in April, and single-family housing starts dropped 0.4%. Declining manufacturing and housing starts could signal a momentum loss for the U.S. economy heading into the summer months.
Real GDP slowed to 1.6% in the first quarter of this year, decelerating from 3.4% in the fourth quarter of 2023. Should the trend persist into the second quarter and beyond, investors may want to consider looking to equities able to weather economic slowing.
Blue chip companies prove popular with investors in times of economic deceleration and recession. Known for their established performance across various market environments, these companies offer the potential for reliable returns in challenging times.
Blue Chip Investing with a Growth or Value Tilt
Investors looking to the reliability of blue chip companies but wanting to seek to capture growth or tilt for value could look to Fidelity’s actively managed blue chip ETFs.
As of April 30, 2024. DJI is used as a representative of standard blue-chip performance.
Looking at FBCG
The Fidelity Blue Chip Growth ETF (FBCG) seeks long-term growth of capital and invests in blue chip companies, with a large cap bias. These companies demonstrate above-average growth potential, according to Fidelity Management & Research Company LLC (FMR). The ETF utilizes fundamental analysis to assess each company’s industry position, financial health, and overall economic and market conditions.
FBCG allows investors invest in stocks where the rate and durability of growth has been mispriced by the market. The ETF looks for companies with competitive advantages, barriers to entry, pricing power, and strong management that has the potential to deliver superior earnings over the long term. FBCG is actively managed with an expense ratio of 0.59%.
Looking at FBCV
The Fidelity Blue Chip Value ETF (FBCV) seeks long-term growth of capital and invests in large-cap value companies. They believe these companies are currently undervalued in the marketplace in relations to factors such as assets, sales, earnings, growth potential, or cash flow. Companies may also demonstrate undervaluation compared to industry peers. The fund utilizes fundamental analysis to assess each company’s industry position, financial health, and overall economic and market conditions.
FBCV offers investors the potential to invest in stocks where there is a significant dislocation between the price of that stock and its intrinsic value, and believes that securities purchased with a large enough margin of safety tend to have a better risk/reward profile and lower volatility. Capital preservation is also as important a factor in investing as is upside potential.
The ETF offers diversification to existing broad equity exposures. It also makes a noteworthy complement to existing value and defensive equity strategies. FBCV is actively managed and has an expense ratio of 0.59%.
For more news, information, and strategy, visit the ETF Investing Channel.
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