On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Fidelity Limited Term Bond ETF (FLTB) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Fidelity Limited Term Bond ETF (FLTB)
Chuck Jaffe: One fund on point for today. The expert to talk about it. This is the ETF of the Week. Welcome to the ETF of the Week, where we examine trending new, newsworthy, unique, and intriguing exchange traded funds with Todd Rosenbluth. He’s the head of research at VettaFi. At VettaFi.com, you’ll find all the tools and research you need to be a savvy and smart investor in exchange traded funds.
Todd Rosenbluth, it’s great to chat with you again.
Todd Rosenbluth: It’s great to be with you again, Chuck.
Chuck Jaffe: Your ETF of the Week is….
Todd Rosenbluth: The Fidelity Limited Term Bond ETF (FLTB).
Chuck Jaffe: The Fidelity Limited Term Bond ETF, FLTB. OK, Todd. In that introduction, I talked about trending new, newsworthy, unique, intriguing exchange traded funds. I think that’s every adjective I used. And I’m pretty sure none of them apply to this one. Like, this is a short-term active bond ETF, right? So none of those adjectives apply, which means you’ve got to have another reason why it’s ETF of the Week.
Todd Rosenbluth: So I’m going to call it intriguing, and here’s why. We’ve seen active ETFs gain traction. We’ve seen investors adopt these products. In fact, we talked about some of them recently on the fixed income side. What is appealing to me about this ETF, and short-term bonds in general, is the $6 trillion that’s still sitting on the sidelines in cash that is at risk of missing out as the Fed begins to cut interest rates in the coming months.
We think investors really need to be mindful of where they’re getting their cashlike investments. And we think Fidelity is a proven manager. This fund has a long enough history to be able to see how it’s performed over time, which has been relatively well. It’s a relatively low cost fund. We think the Fidelity Limited Term Bond ETF deserves more attention than it’s been getting.
Chuck Jaffe: More attention also means more cash. But in this case, one of the questions I ask frequently is, where does the money come from? And if you have cash in your portfolio, do you want to put some of that to work here?
Todd Rosenbluth: We think so, yes. So if you’re sitting in cash because you’ve been earning — through money market funds — a nice rate without having to take on much risk, that’s likely to not be as rewarding going forward. When the Federal Reserve cuts interest rates, that’s a positive thing for bonds that have a little bit of duration. Taking on too much interest rate risk, we think, could be concerning for many investors that are looking for a safe haven.
We think this is a relatively safe, relatively low risk, relatively unexciting — which to me is appealing — fund. And we think you can tap into the expertise that Fidelity offers, and just look at the track record. This fund has been around a while. It’s done exactly what you would hope it would do. And it’s performed relatively in line, slightly better than an index-based strategy.
It costs a little bit more, but we think you’re getting rewarded for it. And Fidelity is one of those proven managers that you want to work with over time.
Chuck Jaffe: Anybody who’s looking at cash is going to want to know the yield on this fund. I mean, what are you expecting in terms of the yield? And is its yield, obviously, presumably competitive in the space?
Todd Rosenbluth: We think it’s competitive within the space. So the fund has been yielding around 5%, which is consistent with what we’ve been seeing for short-term bonds and even from money market funds. Now, as the Federal Reserve cuts rates, we’ll see the yield go down, we’ll see total return potential from this fund. The duration is about two and a half years, so you get some reward as the Fed cuts interest rates, but you’re not taking on too much risk.
And we think it’s important to just also tap into the management expertise, the active management that Fidelity offers. In fact, we’re going to be hearing from the management team behind this fund on April 18 during a VettaFi fixed income symposium. We’ll get to hear from the manager, and so can investors that tune in. You can register through ETFTrends.com to hear about the views on the overall macro economy, the benefits of investing in corporate bonds, single A, triple B-rated bonds that can offer you some higher income in this current environment.
Chuck Jaffe: Now, you mentioned ETFTrends.com, and Tom Lydon, vice chairman of VettaFi, started that site. He’s, of course, a trend follower. You are not necessarily a trend follower, but when it comes to looking for cash equivalents, this is a fund that is above its 200-day moving average. When you’re looking at cash equivalents, is that where you say, maybe you want to be a trend follower, even if you’re normally not?
Because you know, if it’s getting below the 200-day moving average, maybe you’re looking for other cash equivalents, like online savings accounts or something along those lines?
Todd Rosenbluth: Yes, you certainly want to see the trend being your friend when you’re investing in general. I’m not as huge a follower as some others are, but I like to see that the fund is performing relatively well. It is trending higher and I think that’s that’s encouraging for any investment. Fixed income funds and ultra short or short-term bond ETFs — probably less meaningful than it would be for the Nasdaq-100 or small-cap growth strategies.
But you do want to see things in your favor. And with this Fidelity ETF, we think the trend has been its friend.
Chuck Jaffe: When it comes to bond funds, last year the phrase was T-bills and chill, right? It was go hunker down. You’re not making a call here that people should be hunkering down. You’re really saying if you are hunkered down, make sure your cash gets what it needs, right?
Todd Rosenbluth: That’s right. We’ve seen in 2024 investors take on a little bit more risk. They were hunkered down in Treasuries and in ultra short treasuries, or even money market funds. We think the time is right to take on a little bit more interest rate risk, a little bit more credit risk. And that’s what this fund offers. It’s still investing in high-quality corporate bonds, investment-grade bonds.
It still is relatively short in its duration. But you’re stepping out a little bit with this Fidelity ETF. We think that’s warranted, given the current economy, and given that the Federal Reserve will likely cut interest rates in the second half of 2024.
Chuck Jaffe: Well, I’ve got to tell you, Todd, that as we started this, my fear was, we’re talking about this kind of bond fund that we’d say, “wow, that was boring.” But the adjective you picked was intriguing, and it worked out that way. The Fidelity Limited Term Bond ETF. It is FLTB, the ETF of the Week from Todd Rosenbluth.
Todd, great stuff. We’ll talk again next week.
Todd Rosenbluth: I’ll see you next week. Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, I am Chuck Jaffe! You can check out my hourlong weekday podcast by going to your favorite podcast app, or by going directly to MoneyLifeShow.com. Now, if you want to get directed information that’s going to make you a better investor in exchange traded funds, check out VettaFi.com and look at their full suite of tools. It’s going to help you.
They’re on Twitter at @Vetta_Fi and Todd Rosenbluth, their head of research, my guest, he’s on Twitter too. He’s at @ToddRosenbluth. ETF of the Week is here for you every week. Make sure you don’t miss one by following along. And until we do this again next Thursday, happy investing, everybody!
For more news, information, and analysis, visit VettaFi | ETF Trends.