Fidelity expands active offering with investment-grade bond and securitized debt ETFs

Mar 5th, 2021 | By | Category: Fixed Income

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Fidelity has launched two new fixed income ETFs – the Fidelity Investment Grade Bond ETF (FIGB US) and the Fidelity Investment Grade Securitized ETF (FSEC US).

Fidelity expands active ETF lineup with investment-grade bond and securitized debt products

Greg Friedman, Head of ETF Management and Strategy, Fidelity Investments.

Listed on NYSE Arca, the funds are actively managed and seek to provide a high level of current income.

They are priced with total expense ratios of 0.36% and utilize the same portfolio managers and research teams as their namesake mutual funds.

FIGB is managed by Jeffrey Moore and Michael Plage and invests in investment-grade debt securities, including corporate, asset-backed, and government bonds, of domestic US and foreign issuers.

Whilst the fund is actively managed, the managers use the Bloomberg Barclays US Aggregate Bond Index as a reference in structuring the portfolio and selecting investments with the resultant portfolio bearing a similar interest-rate-risk profile.

As of December 31, 2020, the Fidelity Series Investment Grade Bond Fund, the mutual fund equivalent managed by Moore and Plage, had delivered a quarter-end average annual return of 4.44% over the past 10 years compared to 3.84% for the Bloomberg Barclays US Aggregate Bond Index.

FSEC is managed by Franco Castagliuolo and Sean Corcoran and invests in investment-grade securitized debt instruments, including mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities, of domestic US and foreign issuers.

The managers use the Bloomberg Barclays US Securitized Index as a guide in structuring the portfolio and selecting investments, and the fund will maintain a similar interest-rate-risk profile to it.

From its inception on August 17, 2018 to December 31, 2020, the Fidelity Series Investment Grade Securitized Fund, the mutual fund equivalent managed by Castagliuolo and Corcoran, had delivered a quarter-end average annual return of 5.64% compared to 5.15% for the Bloomberg Barclays US Securitized Index.

In identifying investments, the managers of both funds consider a variety of factors such as the credit quality of an issuer, security-specific features, current valuation relative to alternatives in the market, short-term trading opportunities resulting from market inefficiencies, and potential future valuation.

Subject to the constraints of their mandate, the funds allocate among different market sectors and different maturities based on the managers’ view of relative value within each sector or maturity segment.

Both funds are able to engage in repurchase agreements and may hold up to 10% of assets in lower-quality debt securities such as junk bonds.

With this launch, Fidelity now manages 39 ETFs with more than $25 billion in assets.

“We’ve seen strong growth in our actively managed ETF lineup and we’re excited to offer even more choices while delivering excellent value to financial advisors and individual investors,” said Greg Friedman, Fidelity’s Head of ETF Management and Strategy.

“The launch of Fidelity Investment Grade Bond ETF and Fidelity Investment Grade Securitized ETF adds to our robust lineup of bond ETFs across duration and credit spectrums, utilizing Fidelity’s extensive active management capabilities.”

Other products in its suite of active bond ETFs include the Fidelity Total Bond ETF (FBND US), the Fidelity Limited Term Bond ETF (FLTB US), and the Fidelity Corporate Bond ETF (FCOR US). Fidelity also offers two factor bond ETFs, the Fidelity High Yield Factor ETF (FDHY US) and the Fidelity Low Duration Bond Factor ETF (FLDR US).

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