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.
[related_stories]Moreover, once the six new ETFs hit the market September 15, investors who are utilizing the Fidelity brokerage platform will have 91 commission-free ETFs at their disposal – the commission-free ETFs include Fidelity’s full line, along with 70 iShares offerings.
“Knowing that FDRR is designed to thrive if borrowing costs rise, it is not surprising that rate-sensitive utilities and telecom stocks combine for less than 6% of the new ETF’s weight and are two of the three smallest sectors in the new fund,” according to InvestorPlace.
SEE MORE: Fidelity Joins Smart Beta ETF Marathon
Conversely, FDRR allocates close to half of its weight to sectors that are consider cyclical, including consumer discretionary and technology stocks. That does not mean investors sacrifice dividend growth potential with FDRR.
The opposite is true as many of the new ETF’s largest holdings have long histories of steadily boosting payouts, an important factor because dividend growth is often a buffer against rising inflation.
For more information on new fund products, visit our new ETFs category.
Fidelity Dividend ETF for Rising Rates (NYSEArca: FDRR)
