On Thursday, Fidelity Investments expanded its growing ETF library with the launch of three new options-based ETFs. The Fidelity Yield Enhanced Equity ETF (FYEE), Fidelity Hedged Equity ETF (FHEQ), and Fidelity Dynamic Buffered Equity ETF (FBUF) are all trading on the CBOE BZX Exchange.
“The launch of these ETFs broadens Fidelity’s liquid alts offering when we’re seeing increased client demand for downside protection and enhanced income while invested in equity markets,” Bill Irving, head of Fidelity Asset Management Solutions at Fidelity Investments, notes. “The new options-based equity strategies seek to offer risk mitigation, volatility reduction, or yield enhancement in a familiar ETF wrapper, backed by Fidelity’s legacy of active management.”
Each fund primarily invests in equity securities with similar market caps to companies within the S&P 500 Index or Russell 1000 Index. The equity component of each fund utilizes a disciplined investment process for selecting securities and building the portfolio. The ETFs leverage a quantitative process that considers a wide and diverse array of characteristics including growth, quality, and valuation, as well as non-traditional metrics such as short interest.
Options Variety
FYEE aims to provide strong distribution yield by harvesting option premiums through call writing. The fund offers the potential for larger distribution yield potentially at the expense of capping the upside performance of the equity portfolio should the market surpass the strike price.
FHEQ seeks to offer protection against potential sharp market downturns while still participating in market rallies, buying put options at a varying strike prices and expirations. However, the defensive nature of the fund may lag the market in instances of low volatility or sideways market momentum.
FBUF utilizes a unique defensive options “collar” strategy, combining both call option selling and put buying. The fund has strong defensive potential but may miss some market upside participation when the market surpasses the call strike price.
Both FHEQ and FBUF have net expense ratios of 0.48%. FYEE offers a lower net expense ratio of 0.28%.
The Common Goal
The three funds utilize different options-based strategies, with portfolios designed to offer downside protection, volatility management, and/or enhanced income. This potentially benefits investors who are seeking an options strategy that aligns with their investment goals.
“While the options-based ETF universe is growing in supply, Fidelity has a strong active management franchise to leverage. The firm has quickly become one of the largest active ETF providers,” VettaFi Head of Research Todd Rosenbluth said.
These funds expand on Fidelity’s growing ETF lineup, consisting of nearly 70 ETFs listed in the United States. Fidelity’s largest ETP, the Fidelity Wise Origin Bitcoin Fund (FBTC), holds over $10.1 billion in AUM as of March 31st, 2024.
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Fidelity Investments® is an independent company unaffiliated with VettaFi. There is no form of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments. Nor is such a relationship created or implied by the information herein. Fidelity Investments has not been involved with preparing the content supplied by VettaFi. It does not guarantee or assume any responsibility for its content.
Disclosure Information
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses.
Risks for Fidelity Yield Enhanced Equity ETF
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
Writing call options involves the risk that the fund may be required to sell the underlying security or instrument (or settle in cash an amount of equal value) at a disadvantageous price or below the market price of such underlying security or instrument, at the time the option is exercised. As the writer of a call option, the fund forgoes, during the option’s life, the opportunity to profit from increases in the market value of the underlying security or instrument covering the option above the sum of the premium and the exercise price but retains the risk of loss should the price of the underlying security or instrument decline. Additionally, the fund’s call option writing strategy may not fully protect it against declines in the value of the market.
While the fund will normally pay its income as distributions, the fund’s distributions may exceed the fund’s income and gains for the fund’s taxable year. Distributions in excess of the fund’s current and accumulated earnings and profits will be treated as a return of capital. It may have a negative impact on the fund.
The fund’s ability to distribute income to shareholders will depend on the yield available on the common stocks held by the fund and the premiums received by the fund with respect to its written call options. Changes in the dividend policies of companies held by the fund could make it difficult for the fund to provide a predictable level of income. In addition, the premiums received by the fund with respect to its written call options will vary over time and based on market conditions.
Securities selected using quantitative analysis can perform differently from the market as a whole as a result of the factors used in the analysis, the weight placed on each factor, and changes in the factors’ historical trends.
High portfolio turnover (more than 100%) may result in increased transaction costs and potentially higher capital gains or losses. The effects of higher than normal portfolio turnover may adversely affect the fund’s performance.
An ETF may trade at a premium or discount to its Net Asset Value (NAV).
These alternative investment strategies may not be suitable for all investors and are not intended to be a complete investment program for any investor. There is no assurance that the ETFs will be profitable.
Risks for Fidelity Hedged Equity ETF and Fidelity Dynamic Buffered Equity ETF
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
The ETF uses investment techniques that are different from the risks ordinarily associated with traditional equity investments and are considered complex trading strategies. The Fund may purchase or write (i. sell) put and call options. The notional downside protection offered by the option may be less or greater than the value of the Fund’s portfolio. Options may involve economic leverage, which could result in greater volatility in price movement. Certain transaction costs associated with purchasing and writing options may impact the Fund’s returns. In highly volatile markets the cost is expected to increase.
Securities selected using quantitative analysis can perform differently from the market as a whole as a result of the factors used in the analysis, the weight placed on each factor, and changes in the factors’ historical trends.
High portfolio turnover (more than 100%) may result in increased transaction costs and potentially higher capital gains or losses. The effects of higher than normal portfolio turnover may adversely affect the fund’s performance.
An ETF may trade at a premium or discount to its Net Asset Value (NAV).
These alternative investment strategies may not be suitable for all investors. They are not intended to be a complete investment program for any investor. There is no assurance that the ETFs will be profitable.
FBTC is for investors with a high risk tolerance. It invests in a single asset, bitcoin, which is highly volatile and can become illiquid at any time. The Fidelity® Wise Origin® Bitcoin Fund material must be preceded or accompanied by a prospectus. Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses see the fund’s prospectus.
FBTC is not an investment company registered under the Investment Company Act of 1940 (the “1940 Act”). It is not subject to regulation under the Commodity Exchange Act of 1936 (the “CEA”). As a result, shareholders of FBTC do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act or the protections afforded by the CEA.
Digital assets are highly volatile, and their market movements are very difficult to predict. Various market forces may impact their value, including, but not limited to, supply and demand, investors’ faith and their willingness to purchase it using traditional currencies, investors’ expectations with respect to the rate of inflation, interest rates, currency exchange rates, an evolving legislative and regulatory environment in the U.S. and abroad, and other economic trends. Investors also face other risks, including significant and negative price swings, flash crashes, and fraud and cybersecurity risks. Digital assets may also be more susceptible to market manipulation than securities.
The performance of the Fund will not reflect the specific return an investor would realize if the investor actually purchased bitcoin. Investors in the Fund will not have any rights that bitcoin holders have. They will not have the right to receive any redemption proceeds in bitcoin.
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