FCPI: This Inflation ETF Isn’t As One-Dimensional As You Might Think

When inflationary pressures hit, investors often flock to commodities, energy stocks, or Treasury Inflation-Protected Securities (TIPS) to hedge risks. But the Fidelity Stocks for Inflation ETF (FCPI) is quietly challenging that playbook. Designed to navigate rising prices through a multi-faceted lens, FCPI avoids the trap of relying solely on traditional inflation hedges. Instead, it combines valuation, quality, and momentum screens to target companies positioned to thrive—or at least weather—higher prices. The result? An ETF that’s anything but one-dimensional.

The Strategy: Beyond the Usual Suspects

FCPI’s approach is rooted in three pillars: attractive valuations, high-quality metrics, and positive momentum trends. Unlike many inflation-focused funds that lean heavily into energy or utilities, FCPI casts a broader net. Its underlying index selects large- and mid-cap U.S. equities from sectors historically resilient to inflation, such as technology, healthcare, and consumer staples.

The fund’s top holdings reflect this diversity. While utilities like Vistra Corp (VST) and NRG Energy (NRG) anchor the portfolio, tech giants like Apple (AAPL), NVIDIA (NVDA), and Microsoft (MSFT) dominate the list. Even healthcare names like Eli Lilly (LLY) make the cut. This mix suggests FCPI isn’t just betting on inflation-resistant sectors—it’s hunting for companies with pricing power and secular growth tailwinds.

A Concentrated Play with High Returns

FCPI’s portfolio is intentionally concentrated, with the top 10 holdings representing 34.78% of assets. That’s a bold stance in an era of risk-averse investing, but it’s paid off. Over the past year, FCPI delivered a 28.16% annualized return, more than doubling the 13.54% average of its inflation-themed peers.

The concentration isn’t without risks, however. The fund’s top 50 holdings account for 83.79% of assets, versus a 76.45% average for its category. This could amplify volatility during market swings, as seen in tech-heavy stocks like Apple and NVIDIA, which have faced cyclical headwinds in recent quarters.

The ESG Elephant in the Room

FCPI’s environmental, social, and governance (ESG) profile raises red flags. With an ESG score of 6.29/10, the fund lags peers due to its exposure to fossil fuels and a 401.6 tons CO2e/$M sales carbon intensity—a metric that’s likely to draw scrutiny as ESG investing matures. Utilities like Vistra Corp, which relies on coal and natural gas, don’t help. Investors prioritizing ESG should weigh these factors against FCPI’s inflation-fighting credentials.

Why It’s Worth Watching

FCPI’s 0.16% expense ratio is a standout feature, undercutting the 0.48% category average. Combined with its outperformance and targeted strategy, this makes it a cost-efficient way to access inflation-resilient equities.

Conclusion: A Multi-Faceted Hedge with Trade-offs

FCPI isn’t a pure inflation play—it’s a multi-factor ETF that combines growth, quality, and defensive sectors. Its outperformance underscores the power of its strategy, but investors must acknowledge the trade-offs: higher concentration risk, ESG drawbacks, and a reliance on tech and healthcare’s resilience.

For those seeking a non-traditional inflation hedge that avoids the pitfalls of commodities or overexposure to cyclical utilities, FCPI offers a compelling alternative. However, it’s not a set-it-and-forget-it solution. Investors should monitor tech valuations and ESG trends closely. The data speaks for itself: FCPI has delivered when it mattered, but its success hinges on maintaining that balance between growth and defense in an inflationary world.

Final Take: Hold for tactical inflation exposure, but keep an eye on concentration and ESG risks.