Fidelity launches active preferred securities & income ETF

Jun 18th, 2021 | By | Category: Alternatives / Multi-Asset

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Fidelity Investments has launched a new active ETF investing in preferred stock and other income-producing securities.

Fidelity launches active preferred securities & income ETF

, Greg Friedman, Fidelity’s Head of ETF Management and Strategy.

Listed on Cboe BZX Exchange, the Fidelity Preferred Securities & Income ETF (FPFD US) is priced with a total expense ratio of 0.59%.

The fund seeks high total return through a combination of current income and capital appreciation by investing in all types of preferred securities and a variety of income-yielding securities.

The fund is Fidelity’s first stand-alone preferred securities product and is managed by Fidelity veterans Adam Kramer and Brian Chang.

Adam Kramer joined Fidelity in 1999 and has worked as a research analyst, portfolio assistant, and portfolio manager. Brian Chang joined in 2007 and has worked as a research analyst and portfolio manager. The pair have a combined 15 years of experience managing preferred securities within several multi-asset class strategies.

The two portfolio managers will be supported by Fidelity’s High Income and Alternatives Research Team.

The fund will target investments including regular preferred stock, hybrid and trust preferred securities, fixed and floating rate preferred securities, listed and unlisted preferred securities, and preferred securities of all par values, as well as contingent convertible securities and corporate hybrid securities.

It will invest primarily in securities that are rated at least BB by S&P or Ba by Moody’s or that maintain a comparable rating from another nationally recognized credit rating agency. Unrated securities will be eligible for inclusion if they are considered by the portfolio managers to be of comparable quality.

The fund may invest in securities of foreign issuers in addition to securities of domestic US issuers, and it will concentrate its investments in securities of issuers principally engaged in the financial services sector. It may also invest a significant percentage of its assets in relatively few companies, including up to 25% in a single company.

In buying and selling securities for the fund, the portfolio managers will rely on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions.

Factors considered include a security’s structural features and current price compared to its long-term value, and the earnings potential, credit standing, and management of the security’s issuer.

Commenting on the launch, Greg Friedman, Fidelity’s Head of ETF Management and Strategy, said: “Investors continue to look for a range of fixed income solutions across duration and credit spectrums, and we remain committed to using our significant global investment management capabilities and scale to offer choice and value in this space.”

The fund will line up against more than a dozen other preferred stock ETFs already listed in the US. Of these, the market leader by assets is the iShares Preferred and Income Securities ETF (PFF US) from BlackRock. Listed on Nasdaq, this passively managed fund – it is referenced to the ICE Exchange-Listed Preferred & Hybrid Securities Index – holds more than $19 billion in assets. It launched in 2007 and comes with an expense ratio of 0.46%.

With this launch, Fidelity now manages 42 ETFs with more than $29 billion in assets.

In addition to FPFD, Fidelity’s suite of active fixed income ETFs includes the Fidelity Total Bond ETF (FBND US), the Fidelity Limited Term Bond ETF (FLTB US), the Fidelity Corporate Bond ETF (FCOR US), the Fidelity Investment Grade Bond ETF (FIGB US) and the Fidelity Investment Grade Securitized ETF (FSEC 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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