Guarding Against Rising Rates While Sticking With Dividend ETFs

In previous rising rates environments, many income investors believed that dividend stocks would be vulnerable to hawkish changes in the Federal Reserve’s monetary policy.

Exchange traded funds are quelling that concern.

An array of dividend ETFs can offer investors protection higher interest rates while keeping them exposed to income-generating stocks. One of the newest ETFs to enter that particular fray is the Fidelity Dividend ETF for Rising Rates (NYSEArca: FDRR).

The Fidelity Dividend ETF for Rising Rates debuted last week as part of Fidelity’s new suite of six smart beta ETFs. FDRR will track large- and mid-cap dividend-paying companies expected to continue to pay and grow dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields.

Underlying stocks can include those with historically high dividend yields, low dividend payout ratios, high dividend growth, and a positive correlation of returns to rising 10-year U.S. Treasury bond yields.

Related: Best of Both Worlds With This Dividend ETF

FDRR debuted last month as part of six-ETF suite of smart beta products from Boston-based Fidelity. FDRR is one of two dividend ETFs in that group.

The six new smart-beta ETFs are also competitively priced, each showing a total expense ratio of just 0.29%, or cheaper than 80% of Morningstar’s smart-beta peer group.