Fidelity expands factor line-up with two fixed income ETFs in US

Jun 18th, 2018 | By | Category: Fixed Income

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Fidelity Investments has launched two new fixed income ETFs in the US, the Fidelity Low Duration Bond Factor ETF (FLDR US) and the Fidelity High Yield Factor ETF (FDHY US). The funds are the first bond ETFs to be introduced under Fidelity’s factor-based line-up.

Fidelity launches two bond factor ETFs

The new funds are the first fixed income ETFs to be launched under Fidelity’s factor-based line-up.

Low duration

FLDR tracks the Fidelity Low Duration Investment Grade Factor Index, composed of US investment grade floating rate notes with less than five years maturity and US Treasury notes with seven to ten years maturity.

The weights of the two components of the index are chosen to target an option-adjusted duration of 0.9 years. Corporate issuers are constrained to 3.5% of the total index weight each. The index is rebalanced monthly.

Greg Friedman, head of ETF management and strategy at Fidelity, commented, “The 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.”

FLDR has an expense ratio of 0.15% and has been listed on CBOE BZX Exchange.

High yield

FDHY is actively managed and seeks to provide a high level of income and may also seek capital appreciation by 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 Index 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.

“With a quantitative, rules-based methodology at its core and an active liquidity overlay, the 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 Friedman.

FDHY has an expense ratio of 0.45% and has been listed on NYSE Arca.

Fidelity’s existing line-up of factor-based ETFs includes five single factor ETFs, targeting the high dividend, momentum, quality, value, and low volatility factors within the US equity market; a dividend ETF designed to outperform during periods of rising interest rates; and two recently launched international equity ETFs targeting the high dividend and value factors.

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