Fidelity on Thursday expanded its lineup of exchange traded funds, adding two fixed income products to its ETF suite. Both of the new funds are factor-based, or smart beta products.
Fidelity's newest bond ETFs are the Fidelity Low Duration Bond Factor ETF (CBOE: FLDR) and the Fidelity High Yield Factor ETF (NYSE: FDHY).
Fidelity now offers five fixed income ETFs, a still small amount compared to some of the largest ETF sponsors, but there's no denying the Boston-based fund manager is a major player in the bond fund space.
“Fidelity currently manages more than $1.13 trillion in fixed income and high income assets backed by more than 261 investment professionals worldwide,” said the company.
Why It's Important
The Fidelity Low Duration Bond Factor ETF is benchmarked to the Fidelity Low Duration Investment Grade Factor Index.
“The Index is designed to optimize the balance of interest rate risk and credit risk such that both returns and risk measures may be improved relative to traditional U.S. investment grade floating rate note indices. The Index is comprised of U.S. investment grade floating rate notes and U.S. Treasury note,” according to Fidelity.
The new ETF has 80 holdings, over 58 percent of which are considered short-term bonds. FLDR, which was seeded with $10 million, charges 0.15 percent per year, or $15 on a $10,000 investment. Advisors and individual investors that are Fidelity can trade the new ETF commission-free on the Fidelity platform.
The Fidelity High Yield Factor ETF is the first dedicated high-yield bond ETF in Fidelity's stable. FDHY is actively managed and will try to beat the ICE BofAML BB-B US High Yield Constrained Index.
In evaluating junk bonds, FDHY's managers use “a proprietary multifactor quantitative model to systematically screen over 1,000 bonds and select those with strong return potential and low probability of default using a value and quality factor-based methodology,” according to Fidelity.
Over 92 percent of FDHY's 110 holdings are considered intermediate-term bonds. The new ETF charges 0.45 percent per year.
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