FELC: Active ETF Targeting Capital Appreciation With S&P 500 Stocks

In the shadow of the S&P 500’s dominance, active management has long been a contested frontier. Passive ETFs, with their rock-bottom fees and index-mirroring simplicity, have historically outperformed the majority of active managers. Yet, the Fidelity Enhanced Large Cap Core ETF (FELC) emerges as a compelling case study in the potential of active strategies to carve out value in a market seemingly rigged against them.

The FELC Strategy: Active Management with a S&P 500 Lens

FELC is an actively managed ETF that allocates at least 80% of its assets to large-cap U.S. stocks within the S&P 500, seeking capital appreciation through a blend of valuation, growth, and quality factors [1]. Unlike passive counterparts, FELC’s managers prioritize companies with strong brands, global reach, and pricing power—traits that can buffer against inflationary pressures and economic volatility [3]. The fund’s 0.18% expense ratio, while higher than the 0.03% of passive S&P 500 ETFs like IVV or VOO, remains competitive among active ETFs, such as ARK Innovation ETF (ARKK) at 0.75% [3]. This cost structure positions FELC as a middle-ground option for investors seeking active management without excessive fees.

Performance: A Tale of Mixed Results

FELC’s performance in 2025 has been uneven. As of June 30, 2025, it returned 5.4% year-to-date, lagging behind IVV’s 8.59% and VOO’s 8.41% [2]. However, historical data reveals a more nuanced picture. Over the past decade, FELC delivered an annualized return of 13.4%, outpacing the S&P 500’s long-term inflation-adjusted returns [1]. In 2024, it earned a “C” grade for its 14.8% one-year return, suggesting periodic outperformance [2]. These results align with broader market trends: only 40% of active managers outperformed the S&P 500 in 2023, and sustaining top-half performance over five years is rare [4]. FELC’s mixed record underscores the challenges of active management but also hints at its potential when market conditions align with its strategy.

Active Management’s Untapped Potential

FELC’s approach highlights the untapped potential of active management in a passive-dominated landscape. By focusing on factors like quality and valuation—rather than merely tracking an index—it aims to exploit inefficiencies in the S&P 500. For instance, its 58% portfolio turnover rate, slightly above the 57% average for large-blend ETFs, reflects a deliberate effort to rebalance holdings in response to shifting fundamentals [2]. This flexibility can be a double-edged sword: while it may enhance returns in favorable conditions, it also risks higher transaction costs and tax inefficiencies.

The fund’s management team, with an average tenure of 6.09 years, further differentiates it. Long-tenured managers often develop deeper sector insights and avoid the “churn” associated with frequent leadership changes [3]. This stability could be a critical advantage in navigating the S&P 500’s crowded field, where incremental improvements in stock selection or timing can translate to meaningful alpha.

Challenges and Considerations

Despite its strengths, FELC faces headwinds. The S&P 500’s low-cost passive alternatives remain a formidable benchmark. For example, IVV and VOO have consistently outperformed FELC in 2025, illustrating the difficulty of beating an index that already captures the market’s largest, most liquid stocks [2]. Additionally, the broader market’s structural tilt toward passive investing—now accounting for over 50% of U.S. equity assets—limits the room for active strategies to capitalize on mispricings [4].

However, FELC’s performance over a decade (13.4% annualized) suggests that active management can deliver value during extended bull markets or periods of economic stress. Its focus on pricing power and global presence may also provide resilience in inflationary environments, a trait that passive ETFs inherently lack [1].

Conclusion: A Viable Option for Discerning Investors?

FELC embodies the paradox of active management: it is neither a guaranteed outperformer nor a consistent underdog. Its 0.18% fee, while higher than passive options, is justified by its research-driven strategy and long-tenured management team. For investors who prioritize flexibility and factor-based investing over cost savings, FELC offers a compelling case for active management’s potential. Yet, its mixed performance underscores the importance of patience and alignment with the fund’s thesis.

In a world where passive investing reigns supreme, FELC serves as a reminder that active strategies, when executed with discipline and a clear edge, can still carve out a niche. Whether this niche is broad enough to justify its place in a diversified portfolio depends on an investor’s risk tolerance and belief in the power of active management to adapt—a belief that, while historically challenged, remains far from extinguished.

Source:
[1] Fidelity Enhanced Large Cap Core ETF (FELC), [https://www.aaii.com/etf/ticker/FELC]
[2] ETF Evaluator: Fidelity Enhanced Large Cap Core, [https://www.aaii.com/etfs/summary?ticker=FELC]
[3] FELG, FELC, FELV: Are Fidelity's 3 New ETFs Worth Buying?, [https://www.nasdaq.com/articles/felg-felc-felv:-are-fidelitys-3-new-etfs-worth-buying]
[4] The Likelihood of an active manager beating the S&P500, [https://www.reddit.com/r/Bogleheads/comments/1hm2zk6/the_likelihood_of_an_active_manager_beating_the/]