What is FIVA? (Pros, Cons, and Strategies)

As retirement planning becomes more critical due to uncertainties in social programs, investors often turn to different vehicles for long-term savings. One such vehicle growing in popularity is the Fidelity International Value Factor ETF, commonly known as FIVA. Investing consistently in FIVA over the long term can help you achieve your financial goals, including a comfortable retirement. This blog post will explore what FIVA is, along with its advantages, disadvantages, and the strategies involved in investing in it.

What is FIVA?

FIVA is a specialty exchange-traded fund (ETF) that targets international value stocks. Created by Fidelity Investments, FIVA tracks the Fidelity International Value Factor Index.

The purpose of the ETF is to focus on undervalued companies outside the United States that are ostensibly poised for long-term growth. Unlike typical ETFs that might focus on high growth or large-cap stocks, FIVA concentrates on value stocks, which are often trading for less than their intrinsic values.

Key Features of FIVA

• Targeting Undervalued Companies: FIVA seeks to invest in companies that are considered undervalued based on various financial metrics.
• International Exposure: The ETF aims to provide exposure to stocks in developed and emerging markets outside the United States.
• Factor-Based Strategy: FIVA uses a quantitative approach to select stocks that display strong value characteristics, such as low price-to-book ratios and low price-to-earnings ratios.

The selection process involves strict financial screening metrics to ensure that only the most promising value stocks make it into the portfolio.

FIVA Composition

FIVA is composed of international companies from various sectors and countries. It often includes prominent names in industries like manufacturing, finance, and consumer goods, which have strong fundamentals but may be temporarily undervalued. The allocation is geographically diverse, spanning continents from Europe to Asia and beyond.

Pros of FIVA

Diversified International Exposure

One of the key benefits of investing in FIVA is its broad international exposure. By investing in a diverse array of companies outside the U.S., you can mitigate geo-specific risks and tap into growth opportunities in various markets.

Focus on Value Stocks

Value stocks have a historical track record of delivering strong long-term returns. By concentrating on undervalued companies, FIVA aims to provide substantial upside potential as these companies revert to their perceived intrinsic values over time.

Managed by a Reputable Firm

As a product of Fidelity Investments, FIVA benefits from the extensive research and analytical expertise of one of the world's leading financial institutions. This adds a layer of credibility and reliability to the ETF.

Low Expense Ratio

FIVA features a relatively low expense ratio, making it cost-effective for long-term investors. Lower costs mean a smaller portion of your returns will go toward fees, enhancing your net earnings over time.

Cons of FIVA

Currency Risk

International investments come with the added risk of currency fluctuations. The performance of FIVA can be significantly affected by changes in the value of foreign currencies relative to the U.S. dollar.

Market-Specific Risks

While international diversification can mitigate some risks, FIVA is still subject to market-specific economic and political risks in the countries it invests in. Factors like regulatory changes, economic instability, or political upheaval can negatively impact returns.

Potential for Low Liquidity

Compared to U.S.-focused ETFs, FIVA may encounter lower liquidity, meaning it might be harder to buy or sell shares quickly without affecting the market price.

FIVA Investment Strategies

FIVA is best suited for investors seeking long-term growth through international value stocks. Here are some strategies to consider:

Long-term Investment Strategy

Given the nature of its underlying holdings, FIVA is more appropriate for long-term investors. The focus on undervalued stocks implies that it might take years for these investments to realize their full potential. Aim to hold FIVA for at least 5 to 10 years to benefit fully from its value-driven strategy.

Dollar-Cost Averaging

One effective way to invest in FIVA is through dollar-cost averaging. By regularly investing a fixed amount, you can spread out your purchase costs over time. This strategy can reduce the impact of volatility and eliminate the need to time the market.

Dividend Reinvestment

Although FIVA may not be primarily focused on high dividend yields, reinvesting any dividends received can drastically enhance your compound returns over the long term. This creates a snowball effect, adding to the value of your investment as the dividends generate more dividends.

Portfolio Diversification

FIVA should be a part of a well-diversified portfolio. Pair it with other asset classes and ETFs that cover different sectors and markets to achieve a balanced investment mix, which can mitigate risks and improve overall portfolio performance.

Conclusion

FIVA stands out as a valuable investment vehicle for those looking to diversify internationally and tap into the potential of undervalued stocks. Despite the inherent risks associated with international and value-focused investing, the ETF's pros, such as diversified exposure and low expense ratio, make it compelling for long-term investment strategies. By adhering to a disciplined investment approach, you can harness the potential of FIVA to meet your financial goals, be it for retirement or general wealth accumulation.