Investors are increasingly targeting the Fidelity Small-Cap Index ETF (FNDA) to gain exposure to smaller U.S. companies with quality growth features.

This shift reflects a broader market transition where investors are moving away from mega-cap winners. The trend favors under-the-radar small-cap stocks that offer a balance of growth and value, known as Growth at a Reasonable Price, or GARP [1].

FNDA is designed as a fundamentally weighted fund. Seeking Alpha said, "FNDA is a fundamentally weighted small-cap ETF with 900+ holdings and strong sector diversification features" [1]. By focusing on fundamental weights rather than simple market capitalization, the fund aims to avoid overpaying for stocks that have already seen massive price surges.

The strategy emphasizes quality and GARP features to identify companies with sustainable growth potential without excessive valuations [1]. This approach allows the ETF to capture the upside of small-cap volatility while mitigating risk through diversification across more than 900 holdings [1].

While FNDA focuses on the small-cap sector, other smart beta funds have followed similar quality-growth philosophies. For example, the iShares MSCI USA Quality GARP ETF (GARP) debuted on Jan. 14, 2020 [2]. That fund provides investors exposure to the Style Box - All Cap Growth category of the market [2].

Market analysts said that the current environment is conducive to these strategies. As the gap between mega-cap valuations and the rest of the market widens, funds like FNDA provide a mechanism for investors to diversify their portfolios into the small-cap space, while maintaining a strict focus on quality metrics [1].

“FNDA is a fundamentally weighted small-cap ETF with 900+ holdings”

The growing interest in FNDA and GARP-focused ETFs suggests a rotation in investor sentiment. By prioritizing fundamental quality over market momentum, investors are attempting to hedge against the potential overvaluation of the largest tech companies while seeking growth in the smaller, more diversified segments of the U.S. economy.