Investors often turn to blue chip companies in periods of market and economic stress. Valued for their reliability across economic regimes, investors don’t have to sacrifice growth when blue chip investing with the Fidelity Blue Chip Growth ETF (FBCG).
Sonu Kalra, portfolio manager of FBCG at Fidelity Investments, discussed the actively managed fund’s strategy, noting he thinks “it’s a really compelling time to invest in growth stocks currently, as we’re on the cusp of an innovation cycle.”
But why look for growth amid blue chips? “Some of the largest companies in the world are … also the most innovative companies,” explained Kalra.
Under the Hood of FBCG’s Strategy
FBCG seeks long-term growth of capital and invests in blue chip companies, with a large-cap bias. The fund’s management team also seeks companies with sustainable business models, above-average earnings growth and revenue, and either improving or elevated return on capital, according to Kalra.
“My investment philosophy focuses on identifying companies that are participating in large, under-penetrated markets where investors are not only mispricing the absolute rate of growth but also the durability of the growth,” he added.
FBCG seeks companies with competitive advantages, barriers to entry, pricing power, and strong management that have the potential to deliver superior earnings over the long term.
The fund uses fundamental analysis to assess each company’s industry position, financial health, and overall economic and market conditions. Kalra leverages the knowledge and experience of Fidelity’s numerous analysts and research teams to glean insights into cash flows, balance sheets, and other company data when constructing the portfolio.
Capturing Long-Term Growth Investment Themes
When investing in growth-oriented strategies, it’s key to understand the themes a fund tracks. Core themes FBCG invests in include artificial intelligence, and health and wellness.
Kalra noted that the Fidelity research team flagged artificial intelligence as a core thematic trend over ten years ago. “Some of the technology innovations we’re seeing, like artificial intelligence, will have a large influence on the growth rates of these companies,” he noted.
The evolution and broad adoption of AI makes the fourth major innovation cycle experienced within Kalra’s investment career. The first three include the internet, the broad adoption of smartphones, and the transition to cloud technologies.
Alongside increased adoption of generative AI comes a ramp-up in demand for the parts and industries related to AI and data centers. These include semiconductors, energy transformers, power providers, and more, according to Kalra. The AI theme “really takes absolute investment dollars and converts it into human intelligence,” he said.
From Daily Life Impacts to Macro Factors
FBCG also invests in companies related to health and wellness, a trend Kalra believes has lasting power.
“Consumers all over the world are trying to be more health conscious,” he explained. “And as a result, that’s impacting how we live our daily lives.” This impact includes shopping habits, eating habits, as well as the introduction of new classes of weight-loss medications.
Beyond investment themes, the management team of FBCG also takes into account the macro environment. Major factors Kalra is keeping an eye on this year include interest rates, inflation, consumer confidence, energy prices, and elections happening worldwide. All could affect growth rates for industries and individual companies held in FBCG’s portfolio.
FBCG is actively managed and has an expense ratio of 0.59%.
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