1. Organization.
Fidelity
MSCI Communication Services Index ETF, Fidelity MSCI Consumer Discretionary
Index ETF, Fidelity MSCI Consumer Staples Index ETF, Fidelity MSCI Energy Index
ETF, Fidelity MSCI Financials Index ETF, Fidelity MSCI Health Care Index ETF,
Fidelity MSCI Industrials Index ETF, Fidelity MSCI Information Technology Index
ETF, Fidelity MSCI Materials Index ETF, Fidelity MSCI Real Estate Index ETF and
Fidelity MSCI Utilities Index ETF (the Funds) are exchange-traded funds of
Fidelity Covington Trust (the Trust) and are authorized to issue an unlimited
number of shares. Each Fund, with the exception of Fidelity MSCI Industrials
Index ETF and Fidelity MSCI Real Estate Index ETF, are non-diversified funds.
The Trust is registered under the Investment Company Act of 1940, as amended
(the 1940 Act), as an open-end management investment company organized as a
Massachusetts business trust.
2. Significant
Accounting Policies.
Each
Fund is an investment company and applies the accounting and reporting guidance
of the Financial Accounting Standards Board (FASB) Accounting Standards
Codification Topic 946 Financial Services – Investment Companies. The financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP), which require management to
make certain estimates and assumptions at the date of the financial statements.
Actual results could differ from those estimates. Subsequent events, if any,
through the date that the financial statements were issued have been evaluated
in the preparation of the financial statements. Each Fund’s Schedule of
Investments lists any underlying mutual funds or exchange-traded funds (ETFs)
but does not include the underlying holdings of these funds. The following
summarizes the significant accounting policies of each Fund:
Investment
Valuation.
Investments are valued as of 4:00 p.m. Eastern time on the last calendar day of
the period. The Board of Trustees (the Board) has designated each Fund’s
investment adviser as the valuation designee responsible for the fair valuation
function and performing fair value determinations as needed. The investment
adviser has established a Fair Value Committee (the Committee) to carry out the
day-to-day fair valuation responsibilities and has adopted policies and
procedures to govern the fair valuation process and the activities of the
Committee. In accordance with these fair valuation policies and procedures,
which have been approved by the Board, each Fund attempts to obtain prices from
one or more third party pricing services or brokers to value its investments.
When current market prices, quotations or currency exchange rates are not
readily available or reliable, investments will be fair valued in good faith by
the Committee, in accordance with the policies and procedures. Factors used in
determining fair value vary by investment type and may include market or
investment specific events, transaction data, estimated cash flows, and market
observations of comparable investments. The frequency that the fair valuation
procedures are used cannot be predicted and they may be utilized to a
significant extent. The Committee manages each Fund’s fair valuation practices
and maintains the fair valuation policies and procedures. Each Fund’s investment
adviser reports to the Board information regarding the fair valuation process
and related material matters.
Each
Fund categorizes the inputs to valuation techniques used to value its
investments into a disclosure hierarchy consisting of three levels as shown
below:
Level
1 – unadjusted quoted prices in active markets for identical investments
Level
2 – other significant observable inputs (including quoted prices for similar
investments, interest rates, prepayment speeds, etc.)
Level
3 – unobservable inputs (including the Fund’s own assumptions based on the best
information available)
Valuation
techniques used to value each Fund’s investments by major category are as
follows:
Equity
securities, including restricted securities, for which market quotations are
readily available, are valued at the last reported sale price or official
closing price as reported by a third party pricing service on the primary market
or exchange on which they are traded and are categorized as Level 1 in the
hierarchy. In the event there were no sales during the day or closing prices are
not available, securities are valued at the last quoted bid price or may be
valued using the last available price and are generally categorized as Level 2
in the hierarchy. For foreign equity securities, when market or security
specific events arise, comparisons to the valuation of American Depositary
Receipts (ADRs), futures contracts, Exchange-Traded Funds (ETFs) and certain
indexes as well as quoted prices for similar securities may be used and would be
categorized as Level 2 in the hierarchy. For equity securities, including
restricted securities, where observable inputs are limited, assumptions about
market activity and risk are used and these securities may be categorized as
Level 3 in the hierarchy.
Futures
contracts are valued at the settlement price established each day by the board
of trade or exchange on which they are traded and are categorized as Level 1 in
the hierarchy. Investments in open-end mutual funds are valued at their closing
net asset value (NAV) each business day and are categorized as Level 1 in the
hierarchy. If an unaffiliated open-end mutual fund’s NAV is unavailable, shares
of that fund may be valued by another method that the Board believes reflects
fair value in accordance with the Board’s fair value pricing policies and is
categorized as Level 2 in the hierarchy.
Changes
in valuation techniques may result in transfers in or out of an assigned level
within the disclosure hierarchy. The aggregate value of investments by input
level as of January 31, 2024 is included at the end of each Fund’s Schedule of
Investments.
