Among the various factor picks, dividends have been a focal point for many investors, especially in an extended low-rate environment, but with the Federal Reserve eyeing higher rates ahead, investors have been rethinking their positions. Nevertheless, Fidelity offers a dividend ETF strategy that may also better navigate a rising rate environment.
“Advisors are really gravitating toward the dividend suite that Darby’s felt out, and if look back in history, we’ve had dividend ETF in the market for over 15 years, but the majority of them are concentrated,” Matt Goulet, V.P. of Sector & ETF Investment Strategy for Fidelity Institutional Asset Management, said. “Looking at individual stock and how many years they’ve increased dividends – whether it’s 5 years or 10 years or 20 years, we took a little bit of a different approach. We started with yield, which is what the advisors are really looking for, and then built the methodology around the yield of the underlying portfolios.
“On top of that, we did dividend ETF for rising rates, so we recognize that most people are concerned buying dividend stocks in a rising rate environment,” Goulet said.
FDRR’s main selling point is the ETF’s specific screens towards companies that perform well during rising interest rate environments. Consequently, in periods of rising rates, FDRR is neutral to stocks compared to other dividend ETFs that may weaken, essentially doing well on rising days and holding up on down slides to help investors generate improved risk-adjusted returns over the long haul. The ETF’s additional focus on dividend growers may also help the portfolio perform during the period ahead as dividend growth stocks typically do well in rising rate environments.
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