Fidelity Enhanced Small Cap ETF

FESM

Market cap $3.6B

Small-cap stocks are finally having their moment. After years of mega-cap tech dominance, the Russell 2000 is surging in the first week of 2026, outpacing both the S&P 500 and Nasdaq-100.

Fidelity Enhanced Small Cap ETF (FESM) employs a multi-factor, growth-tilted strategy, consistently outperforming the Russell 2000 and peers over 3- and 5-year periods.

Fidelity Enhanced Small Cap ETF employs a proprietary multi-factor approach to select and weight nearly 600 U.S. small-cap stocks. FESM has consistently outperformed the Russell 2000, Russell 2000 Value, and Russell 2000 Growth indexes over the past decade. While FESM's recent returns are strong, RWJ and AVUV have more compelling track records.

Small caps staged a comeback in Q3, with ETFs like FESM, RZV, FYX, VTWV, JSML, IWO topping gains. While there are certain tariff risks, the Fed's rate cut potential is a plus.

Halftime in 2025 threw a spotlight on active small- and midcap funds via the SPIVA U.S. Mid-Year 2025 report. The trend of active ETF launches is outpacing their passive peers this year.

After a strong 2024, Fidelity ETFs gathered approximately $10 billion in the first four months of 2025. Demand for actively managed products has been a key driver as Fidelity leans further into the ETF market.

FESM is an actively managed ETF offering exposure to financials- and industrials-heavy basket of SMID stocks. There is minor exposure to large caps as well. Since the conversion to an ETF in November 2023, FESM has been on a tear for quite some time, so it even beat IVV over December 2023 to January 2025. Still, it has been remarkably sensitive to the recent market softness as it trailed IVV and peers like IJR and IWM in February.

One month into 2025, and ETFs are already off to the races, hauling in over $100 billion in net inflows in January. Hefty gains across the board reflect continued bullish sentiment on the stock market overall.

Investor appetite for growth really is something to behold.  Coming into the week of the U.S. presidential inauguration, we had been talking about the importance of diversification in the face of so much uncertainty, geopolitical risk, and lofty equity valuations following massive market gains in recent years.

2024 offered significant returns for investors, with the S&P 500 up 23.5% over the last year per YCharts data. Figuring out the right approach to 2025, then, looms as a key task for investors.