With the fixed income market flush with uncertainty, yield may be harder to attain. This is where collateralized loan obligations (CLOs) can offer opportunities. Fidelity is entering this arena with the launch of two new, actively managed ETFs: the Fidelity AAA CLO ETF (FAAA) and the Fidelity CLO ETF (FCLO).
The CLO market was once a niche, institutional playground. That is, until the ETF provided access to this once exclusive investment space. CLOs consist of pools of loans that are bundled and divided into tranches according to risk as well as payment priority. Compared to traditional fixed income instruments like bonds, CLOs have other inherent benefits such as floating rate features and senior priority.
With that, the new ETFs from Fidelity come in two distinct variations.
- Income Stability (FAAA): With an expense ratio of just 20 basis points, the fund targets top-tier AAA-rated tranches. With stubborn inflation and shifting growth expectations, FAAA provides access to high-quality alternatives to bonds in the convenience of an ETF wrapper.
- Yield Optimization (FCLO): For those looking to maximize yield opportunities, FCLO serves this purpose with a targeted focus on BBB+ to B- or the equivalent to optimize income for 45 basis points.
“Investors are looking for new return and diversification opportunities, and we’re committed to meeting client needs by developing high-quality solutions like the new CLO ETFs,” said Harley Lank, head of high income & alternatives at Fidelity Investments, in a company news release. “Fidelity has deep credit research capabilities and a longstanding history in the CLO space as both an issuer and investor.”
The Active Benefits
As Lank mentioned, the new ETFs tap into the portfolio management expertise at Fidelity. A record number of active ETFs launched in 2025. That speaks to investor demand for flexible alternatives that can provide all-weather solutions in a time of market uncertainty.
Active management is even more imperative in the current market environment, especially with regard to CLOs. The CLO market carries its own unique set of complexities and idiosyncratic risks. It requires a deep well of experience and knowledge to deftly navigate this space. In the aforementioned news release, Fidelity mentioned their more than two decades of experience in CLOs.
With market uncertainty from 2025 returning to 2026 and a new U.S. Federal Reserve chair incoming, diversifying income is more necessary now than before. Rather than relying on traditional sources like bonds, income seekers can look to funds like FAAA or FCLO for long-term wealth building, capital preservation, and/or income.
Both fund strategies are wrapped in the flexibility, tax efficiency, and cost-efficiency of an ETF wrapper, with Fidelity’s brand recognition behind them.
For more information on FAAA, click here to view the product page.
For more information on FCLO, click here.
To learn more about CLOs, click here.
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