Each week, ETF Trends publisher Tom Lydon sits down for “ETF of the Week” for MarketWatch on Chuck Jaffe’s MoneyLife Show where he highlights big movers and losers among exchange traded funds.
This week, Lydon looked at the Fidelity Dividend ETF for Rising Rates (FDRR), a dividend ETF strategy for a rising interest rate environment.
FDRR is designed to reflect the performance of stocks of large and mid-capitalization, dividend-paying companies expected to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields.
Positive correlation to Treasury yields and sector neutrality may help protect investors’ returns in rising rate environments, when high-yielding stocks and sectors tend to underperform
The underlying index employs a multi-factor approach:
– including a 63% weight toward companies with higher dividend yields, and smaller 13.5% to avoid firms with payouts that are too high and might be cut in the future, 13.5% to those expected to grow dividends in the future and 10% to firms that perform better with rising rates.
– takes into account not just dividend yield, dividend growth and dividend payout ratio, but also adds in correlation to the 10-year treasury rate