Fidelity has expanded on its factor-based lineup with two new ETFs to help fixed-income investors potentially find better value with their bond investments and better diversify a portfolio in a rising rate environment.
On Thursday, Fidelity Investments launched the Fidelity Low Duration Bond Factor ETF (Cboe: FLDR) and the actively managed Fidelity High Yield Factor ETF (NYSEArca: FDHY), which have a 0.15% expense ratio and 0.45% expense ratio, respectively.
“These are two areas we know clients are looking for, and areas where we can bring insights to our clients,” Greg Friedman, head of ETF management and strategy at Fidelity, told ETF Trends. “The two ETFs are smarter ways at looking at the asset class.”
The new fixed income and high income factor ETFs apply Fidelity’s quantitative analysis and proprietary risk management to seek sources of income to help drive better portfolio outcomes.
Core Building Blocks
“We want to bring products to the market that are timeless, core building blocks,” Friedman added.
The Fidelity Low Duration Bond Factor ETF try to reflect the performance of the Fidelity Low Duration Investment Grade Factor Index, which is comprised of U.S. investment grade floating rate notes with less than 5 years maturity and U.S. Treasury notes with 7 to 10 years maturity. The underlying index is designed to optimize the balance of interest rate risk and credit risk so that both returns and risk measures may be improved relative to traditional U.S. investment grade floating rate note indices.
“With a quantitative, rules-based methodology at its core and an active liquidity overlay, Fidelity High Yield Factor ETF leverages our extensive high income capabilities to offer an enhanced exposure to the high yield market for ETF investors,” Friedman said.
The actively managed Fidelity High Yield Factor ETF seeks to provide a high level of income and may also seek capital appreciation by investing in debt securities rated below investment grade. The fund uses a proprietary multi-factor quantitative model to screen over 1,000 debt securities and chooses those with strong return potential and low probability of default through a value and quality factor-based methodology. The fund uses the ICE BofAML BB-B US High Yield Constrained Index to guide the selection process of its investments as it relates to credit quality distribution and risk characteristics.
“Fidelity Low Duration Bond Factor ETF is unique in its category because it seeks a balance between credit risk and interest rate risk, on top of pursuing higher income potential than a money market with lower volatility than a short-term bond fund,” Friedman added.
For more information on new fund products, visit our new ETFs category.