BUILDING FIDELITY THEMATIC MODELS
Our unique process in 5 steps
IDENTIFY & DEFINE THEME
Fidelity's global equity research team helps identify and define themes from cloud computing to clean energy.
They dig and uncover subthemes and related business activities that align with the chosen theme. Examples of key words and related subthemes and business activities for clean energy could be solar, wind, and hydrogen.
REFINE THE STARTING UNIVERSE
The team continues the dig, selecting global stocks that meet our requirements. Requirements include an eligible exchange to enable fractional share trading, minimum market cap, and liquidity.
THEMATIC QUALITY SCREEN
The analysts, taking advantage of their focus in the specific industry, may also apply quality filters to each theme and subtheme. These filters are then used to identify and exclude some riskier stocks that don’t meet our quality screen.
RANK STOCKS BY THEMATIC RELEVANCY
Now it's time to rank stocks based on our proprietary Thematic Relevancy Score. This score is generally based on a combination of each company's total $ revenue, total % revenue tied to the theme or subthemes business activities (identified by our thematic analysts), and Natural Language Processing (NLP) score.
NLP scores are calculated using an algorithm to quantify the relevance of key words, based on the frequency in the company’s financial documents.
CHOOSE FINAL STOCK LIST
The team chooses up to 30 of the top stocks based off the Thematic Relevancy Score.
CONSTRUCT MODEL WEIGHT
Now it's the final weighting. Each stock is weighed using an adjusted market cap weight that accounts for factors such as model risk and liquidity. Individual stock weights are capped at around 10%.
All does not stop here. On a regular basis our team reviews the entire process to ensure that themes and stocks are still relevant, adjusting each model’s weights as well as adding and removing stocks if deemed appropriate.
And that's how Fidelity thematic models are built!
