Fidelity rolls out five fixed income ETFs on TSX

Sep 25th, 2019 | By | Category: Fixed Income

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Fidelity Investments Canada has launched five new fixed income ETFs on Toronto Stock Exchange, including one index-linked fund and four actively managed funds.

Fidelity rolls out five fixed income ETFs on TSX

Fidelity has launched four actively managed ETFs and one index-linked ETF on Toronto Stock Exchange.

The passive ETF tracks a Canadian aggregate bond index that uses an optimization process to enhance risk-adjusted returns while controlling duration.

The four active ETFs offer global core, Canadian short-term corporate, US high yield, and currency-hedged US high yield bond exposures.

Index-linked

The passive fund is the Fidelity Systematic Canadian Bond Index ETF (FCCB CN) which is linked to the Fidelity Canada Systematic Canadian Bond Index.

The index covers CAD-denominated investment-grade debt across several bond sectors including sovereign, quasi-government, corporate, securitized, and collateralized securities. Eligible securities are drawn from across the yield curve.

Sovereign and non-sovereign securities must have minimum amounts outstanding of C$1 billion and C$100 million, respectively. Bills, inflation-linked debt, and strips are excluded from the universe. Callable perpetual securities are eligible for inclusion provided they are at least one year from their first call date.

Securities from the universe are selected for the index based on an optimization process, accounting for nominal interest rates and credit spreads in order to improve risk-adjusted performance while maintaining an interest rate duration similar to the broad Canadian bond market universe.

For bonds with effective maturities of under ten years, the methodology reduces exposure to Canadian government bonds and increases exposure to corporate bonds of similar maturity. For bonds with effective maturities of longer than ten years, the methodology increases exposure to Canadian government bonds.

Constituents are weighted by market capitalization within their sector allocations as determined by the model, subject to an individual corporate issuer cap of 5%. The index is reconstituted and rebalanced monthly.

The ETF comes with a management fee of 0.25%.

Actively managed

The Fidelity Global Core Plus Bond ETF (FCGB CN) invests globally in a wide variety of fixed income securities across many bond sectors. The fund tactically allocates among issuers in different market sectors, industries, bond sectors, and maturities based on a combination of top-down and bottom-up perspectives.

The ETF may invest up to 70% of its assets in high yield debt, and no more than 20% of the fund’s assets will be currency-hedged. It comes with a management fee of 0.50%.

The Fidelity Canadian Short Term Corporate Bond ETF (FCSB CN) primarily invests in investment-grade short-term debt securities issued by corporate entities in the Canadian market. The fund may invest up to 10% of its assets in corporate bonds issued in foreign markets. The portfolio managers select securities based on factors such as credit quality, current yield, balance sheet strength, financial leverage, and short-term trading opportunities.

In pursuing alpha, the fund may also hold a small proportion of assets in maple bonds (bonds denominated in Canadian dollars and sold in Canada by foreign issuers), high yield securities, asset-backed securities, mortgage-backed securities, floating rate debt instruments, and emerging markets debt. It comes with a management fee of 0.40%.

The Fidelity Systematic US High Yield Bond ETF (FCHY CN) invests in non-investment grade debt issued in US dollars. It is expected to focus on issues rated ‘BB’ or ‘B’ by Standard & Poor’s, or an equivalent rating by another credit rating agency.

The fund uses a quantitative multi-factor model to screen the universe and selects those bonds with strong return potential and low probability of default using a value and quality factor-based methodology. It comes with a management fee of 0.50%.

The Fidelity Systematic US High Yield Bond Currency Neutral ETF (FCHH CN) employs the same investment approach as described above but hedges currency exposure between the US and Canadian dollar. It comes with a management fee of 0.53%.

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