Both Fidelity and T. Rowe Price ETFs are cashing in on "blue chips." But these aren't the S&P 500 blue chips of yore you might think of.
Fidelity Blue Chip Growth ETF returned 25.3% this year. That puts it miles ahead of the S&P 500's 13.4% return this year, says data from Morningstar Direct. Meanwhile, T. Rowe Price Blue Chip Growth ETF is up 22.3%.
But don't look for typical Dow Jones blue chips in these ETFs. Instead, Fidelity and T. Rowe Price seem to have defined a new group.
"Many people still think of blue chips as companies they grew up with that are as American as they come: Coca-Cola, General Motors and IBM," said Todd Rosenbluth, head of ETF research at Vetta Fi. "But those companies are not driving the market and the U.S. economy as they were in the past."
For instance, T. Rowe Price Blue Chip Growth recently owned electric-car maker Tesla, but not GM, Rosenbluth says.
What Are These New Blue Chips?
So what do Fidelity and T. Rowe Price consider to be the new blue chips? Not surprisingly, Dow giants like Apple and Microsoft make the cut. But it's not just about these S&P 500 giants.
Microsoft is only the second-largest position in the Fidelity Blue Chip portfolio at 9.7%. And Apple is fourth at 7.6%.
Other large-cap growth plays like Nvidia, Meta Platforms and Netflix also make the cut. Nvidia is the top position in the Fidelity Blue Chip ETF at a whopping 13%. And Amazon.com is third at 9.5%.
But these blue chip ETFs are also holding large health care firms like Eli Lilly and UnitedHealth, Rosenbluth says.
In a nutshell, these new blue chips are "high quality, growth stocks that remain attractively valued," he said. They are "companies with strong balance sheets and steady cash flow generation."
Where Blue Chip ETFs Make Sense
Both the Fidelity and T. Rowe Price ETFs are managed by human portfolio managers. That makes both of them distinct from each other and the S&P 500, too.
Some investors are adding these types of ETFs to pair with other large-cap indexed positions in a fairly low-cost way, Rosenbluth says. Fidelity Blue Chip charges 0.59% annually and holds 205 stocks. T. Rowe Price's version holds 75 stocks and charges 0.57% a year.
The same portfolio managers run mutual funds with the same holdings. But the ETF structure offers tax advantages. "Investors benefit from the liquidity and tax efficiency of ETFs," Rosenbluth said. But the two ETFs do diverge from one another.
"They are not identical as they have some distinct holdings," Rosenbluth said. For instance, Marvell Technology and Snap were recent top 10 holdings for Fidelity's Blue Chip fund, but not T. Rowe Price's. "Each firm has its own proprietary approach to assessing the valuation and fundamentals of large-cap stocks," Rosenbluth said.
What's Not Blue Chip?
So if large technology and health care plays are now blue-chip growth stocks, what isn't making the cut? Both ETFs underweight value-oriented S&P 500 sectors like consumer staples and financials.
But in a market where a handful of giant tech stocks drive returns, skipping old-school blue chips is a good thing.
Fidelity's Blue Chips
Top holdings in Fidelity Blue Chip Growth ETF
| Symbol | Company | Weight | YTD % ch. |
|---|---|---|---|
| Nvidia | 13% | 153.4% | |
| Microsoft | 9.6 | 16.8% | |
| Amazon.com | 9.4 | 22.1% | |
| Apple | 7.5 | 13.6% | |
| Alphabet | 7.1 | 26.4% | |
| Meta Platforms | 4.5 | 43.2% | |
| Eli Lilly | 2.9 | 48.5% | |
| Netflix | 2.2 | 32.5% | |
| Snap | 2.1 | -6.5% | |
| Uber Technologies | 2.0 | 17.8% |
