BOSTON--(BUSINESS WIRE)--Fidelity Investments®, one of the industry’s leading providers of exchange traded funds (ETFs) with more than $380 billion in ETF assets under administration,2 today announced an expansion of its ETF lineup with the introduction of two factor ETFs: Fidelity Low Duration Bond Factor ETF (FLDR) and Fidelity High Yield Factor ETF (FDHY).
The new ETFs are competitively priced with total expense ratios of just 0.15% for FLDR and 0.45% for FDHY. Both ETFs began trading today, the Fidelity Low Duration Bond Factor ETF on the CBOE BZX Exchange, Inc. and Fidelity High Yield Factor ETF on the New York Stock Exchange. They are available to individual investors and financial advisors commission-free3 through Fidelity’s online brokerage platforms. These 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. Fidelity currently manages more than $1.13 trillion in fixed income and high income assets backed by more than 261 investment professionals worldwide.4
“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,” said Greg Friedman, head of ETF management and strategy at Fidelity. “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.”
With the addition of these two ETFs, investors now have access to 95 commission-free3 ETFs, including the full suite of 10 factor ETFs, three Fidelity actively-managed bond ETFs, 11 Fidelity passive equity sector ETFs, Fidelity ONEQ, and 70 passive iShares ETFs. Fidelity’s commission-freeiii ETF lineup continues to see tremendous asset growth, with $111 billion in AUA.5
Fidelity’s New Fixed Income ETFs: Investment Objectives and Index Definitions
- Fidelity High Yield Factor ETF (FDHY) seeks to provide a high level of income and may also seek capital appreciation by normally investing at least 80% of its assets in debt securities rated below investment grade. In buying and selling securities, the fund uses 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. The fund uses the ICE BofAML BB-B US High Yield Constrained Index6 as a guide in structuring the fund and selecting its investments as it relates to credit quality distribution and risk characteristics. The fund also employs active security selection to optimize trading and reduce transaction costs.
- Fidelity Low Duration Bond Factor ETF (FLDR) will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Low Duration Investment Grade Factor Index. The fund will normally invest at least 80% of its assets in securities included in the index. 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, 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.
New ETFs Expand Fidelity’s Fixed Income and High Income Offerings
These new factor ETFs complement Fidelity’s broader fixed income and high income offerings, including Fidelity’s actively-managed fixed income and high income mutual funds and actively-managed fixed income ETFs. In April, Fidelity lowered the net expense ratios on its three actively-managed fixed income ETFs from .45% to .36%.
“Our three active fixed income ETFs were already very competitively priced compared to other actively managed fixed income ETFs that invest primarily in U.S. investment-grade taxable bonds,” says Friedman. “With these price reductions, they are even more compelling.”
The three actively-managed fixed income ETFs were launched in October 2014 to meet client demand for funds with active fixed income management, while offering the trading flexibility and transparency of an ETF. The three ETFs include:
- Fidelity Total Bond ETF (FBND), which seeks a high level of current income. The fund normally invests at least 80% of its assets in debt securities of all types and repurchase agreements for those securities;
- Fidelity Limited Term Bond ETF (FLTB), which seeks a high rate of income. The fund normally invests at least 80% of its assets in investment-grade debt securities of all types and repurchase agreements for those securities; and
- Fidelity Corporate Bond ETF (FCOR), which seeks a high level of current income. The fund normally invests at least 80% of assets in investment-grade corporate bonds and other corporate debt securities and repurchase agreements for those securities.
Fidelity Provides Factor and ETF Educational Resources
Fidelity research on factor investing includes “An Overview of Factor Investing” and “Putting Factors to Work.” Fidelity’s customers can find in-depth investment insights, research, education and a highly customizable screener for finding ETFs and other exchange traded products (ETPs) at the ETF landing zone (www.fidelity.com/etfs) on Fidelity.com.
About Fidelity Investments
Fidelity’s
mission is to inspire better futures and deliver better outcomes for the
customers and businesses we serve. With assets under administration of
$6.9 trillion, including managed assets of $2.5 trillion as of April 30,
2018, we focus on meeting the unique needs of a diverse set of
customers: helping more than 27 million people invest their own life
savings, 23,000 businesses manage employee benefit programs, as well as
providing more than 12,500 financial advisory firms with investment and
technology solutions to invest their own clients’ money. Privately held
for 70 years, Fidelity employs more than 40,000 associates who are
focused on the long-term success of our customers. For more information
about Fidelity Investments, visit https://www.fidelity.com/about.
Before investing, consider the exchange traded funds’ investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. The securities of smaller, less well-known companies can be more volatile than those of larger companies. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how the fund’s factor investment strategy may differ from more traditional index products. Depending on market conditions, fund performance may underperform compared to products that seek to track a more traditional index. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses and tracking error. An ETF may trade at a premium or discount to its Net Asset Value (NAV).
In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities). Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Lower-quality fixed income securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Foreign investments involve greater risks than U.S. investments, and can decline significantly in response to adverse issuer, political, regulatory, market, and economic risks. Any fixed-income security sold or redeemed prior to maturity may be subject to loss.
Fidelity High Yield Factor ETF (FDHY) will seek a high level of income and may also seek capital appreciation by normally investing at least 80% of its assets in debt securities rated below investment grade. The fund will be actively managed using a proprietary multifactor quantitative model that systematically screens for bonds with strong return potential and low default probability using a value and quality factor-based methodology. The fund’s adviser, FMR Co., Inc. uses the ICE BofAML BB-B US High Yield Constrained Index,℠ a modified market capitalization-weighted index of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market, as a guide in structuring the fund and selecting its investments as it relates to credit quality distribution and risk characteristics.
Fidelity Low Duration Bond Factor ETF (FLDR) will seek to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Low Duration Investment Grade Factor Index. The fund will normally invest at least 80% of its assets in securities included in the index. 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, 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.
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.
Low Duration:
In general the bond market, especially foreign markets, are volatile, and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Fixed income securities carry interest rate risk (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.). Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. Securities with floating interest rates can be less sensitive to interest rate changes than securities with fixed interest rates, but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Leverage can increase market exposure and magnify investment risk. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how a factor investing strategy may differ from a more traditional index-based or actively managed approach. Depending on market conditions, factor-based investments may underperform compared with investments that seek to track a market capitalization–weighted index or investments that employ full active management. The fund generally expects to effect its creations and redemptions for cash rather than in-kind securities, and may recognize more capital gains and be less tax-efficient than if it were to redeem in-kind. The return of an index ETF is usually different from that of the index it tracks because of fees, expenses and tracking error An ETF may trade at a premium or discount to its Net Asset Value (NAV). There can be no assurance that an active trade market will be maintained and trading may be halted due to market conditions.
High Yield:
In general the bond market, especially foreign markets, are volatile, and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Fixed income securities carry interest rate risk (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.). Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which may be magnified in emerging markets. Leverage can increase market exposure and magnify investment risk. Securities selected using quantitative analysis can perform differently from the market as a whole as a result of the factors used in the analysis, the weight placed on each factor, and changes in the factors' historical trends. There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how a factor investing strategy may differ from a more traditional index-based or actively managed approach. Depending on market conditions, factor-based investments may underperform compared with investments that seek to track a market capitalization–weighted index or investments that employ full active management. The fund generally expects to effect its creations and redemptions for cash rather than in-kind securities, and may recognize more capital gains and be less tax-efficient than if it were to redeem in-kind .An ETF may trade at a premium or discount to its Net Asset Value (NAV). There can be no assurance that an active trade market will be maintained and trading may be halted due to market conditions.
Beta is a measure of risk. It represents how a security has responded in the past to movements of the securities market. Smart beta represents an alternative investment methodology to typical cap-weighted benchmark investing and there is no guarantee that a smart beta or factor-based investing strategy will enhance performance or reduce risk.
The indices were created by FMRCo., Inc. using a rules-based proprietary index methodology and the performance of the funds and their indices may vary somewhat due to various factors including fees and expenses. You cannot invest directly in an index.
There is no guarantee that a factor-based investing strategy will enhance performance or reduce risk. Before investing, make sure you understand how a factor investment strategy may differ from more traditional index based approach. Depending on market conditions, factor based investments may underperform compared to investments that seek to track a market-capitalization weighted index.
Fidelity, Fidelity Investments, Fidelity Investments and the pyramid logo, are registered service marks of FMR LLC.
The third party trademarks appearing herein are the property of their respective owners.
It is not possible to invest directly in an index.
For iShares ETFs, Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with an exclusive, long-term marketing program that includes promotion of iShares ETFs and inclusion of iShares funds in certain FBS platforms and investment programs. Additional information about the sources, amounts, and terms of compensation is described in the ETF’s prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice. BlackRock and iShares are registered trademarks of BlackRock, Inc. and its affiliates. The 70 iShares commission-free ETFs offer is for online customers who open an account with a minimum balance of $2,500.
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1 Free commission offer applies to online purchases of select iShares ETFs in a Fidelity account. Fidelity accounts may require minimum balances. The sale of ETFs is subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). iShares ETFs are subject to a short-term trading fee by Fidelity if held less than 30 days.
2 As of April 30, 2018.
3 Free commission offer applies to online purchases of select iShares ETFs in a Fidelity account. Fidelity accounts may require minimum balances. The sale of ETFs is subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). iShares ETFs are subject to a short-term trading fee by Fidelity if held less than 30 days.
4 As of March 2018.
5 As of March 2018.
6 The ICE BofAML BB-B US High Yield Constrained IndexSM is a modified market capitalization–weighted index of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have an average rating (based on Moody’s, S&P and Fitch) between BB1 and B3, inclusive. The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the US or a Western European nation. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all securities of The ICE BofAML BB-B US High Yield Index but caps issuer exposure at 2%.
