December 2022 IssueLong scroll reading

Launch Alert: Fidelity Hedged Equity (FEQHX)

By David Snowball

On September 1, 2022, Fidelity launched Fidelity Hedged Equity (FEQHX) which is also available in five Fidelity Advisor share classes.

The goal is Fidelity Hedged is to provide capital appreciation. Presumably, it’s also to provide capital appreciation with less volatility than the stock market, hence the “hedged” piece. The strategy is to invest in an S&P 500-like stock portfolio. That means some growth and small value but mostly large cap. The managers then apply “a disciplined options-based strategy designed to provide downside protection” mostly by buying put options, which appreciate when the relevant underlying asset depreciates. Generally, the hope is to gain most of the market’s long-term return with a fraction of its volatility. The downside is that, even if the strategy is executed well, you sacrifice some of the market’s upside.

To date, the fund has done just that: it dropped markedly less than the S&P 500 in its first six weeks of operation and rose markedly less over the rebound in the following six weeks.

The managers are Eric Granat, Mitch Livstone, and Zach Dewhirst. Of the three, only Mr. Dewhirst has previously managed mutual fund assets.

If you’re looking for a more experienced team pursuing an essentially similar strategy, you should look at Bridgeway Managed Volatility, which we’ve profiled twice in the past. The fund’s consistent record gives you a good sense of what the strategy offers:

And, while the comparison is short, Bridgeway (in red) has executed the strategy better so far than has Fidelity (in blue).

The Managed Volatility homepage has a fair amount of information about the strategy and its record.

The Fidelity Hedged has gathered $47 million in assets, with no investment minimum and an expense ratio (after waivers) of 0.55%. The fund’s homepage is light on content, understandably, since it’s both new and Fidelity (a famously content-light bunch), but it provides the essentials.

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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.