In response to growing investor demand for products that offer both downside protection and potential for enhanced income, Fidelity Investments has unveiled three new exchange-traded funds (ETFs). The actively managed ETFs, namely the Fidelity Dynamic Buffered Equity ETF (FBUF), Fidelity Hedged Equity ETF (FHEQ), and Fidelity Yield Enhanced Equity ETF (FYEE), are designed to combine a foundational equity portfolio with options overlays.
Expanding Fidelity’s Alternatives Offering
This launch extends Fidelity’s liquid alternative investments suite, which is demand of the market for innovative investment solutions. Bill Irving, chief of Fidelity Asset Management Solutions, observed the growing appetite of customers to protect their equity holdings against the slides in the market while seeking more income bets around. Irving noted that these new ETFs are likely to provide investors with opportunities to reduce risk, lower volatility, or enhance yield through approaches supported by Fidelity’s active management know-how.
Fidelity getting into the Boomer candy game, hitting a bunch of flavors with a buffer ETF, Hedged Equity and “Yield Enhanced” ETF, all of which use options to limit downside risk.. Fees are 48bps and 28bps resp pic.twitter.com/4zSCFI1tHN
— Eric Balchunas (@EricBalchunas) April 11, 2024
The new ETFs are rooted in a core U.S. equity approach with an aim of outperforming the S&P 500 Index. The multifactor model used by Fidelity seeks to find companies that have attractive valuations and strong quality metrics. This method guarantees a close correlation of the risk profile of each ETF with its benchmark index.
Features of the New ETFs
The Fidelity Dynamic Buffered Equity ETF (FBUF) uses a mixture of strategies of call writing and put buying to create a dynamic “collar” that is designed to offer defensive investment positions. This approach focuses on providing significant downside protection but with the possibility of suppressing upside participation.
On the other hand, the Fidelity-Hedged Equity ETF (FHEQ) is a fund that seeks to hedge against large market drops by buying put options in various expirations and strike prices. This ETF is designed to cater for those investors who want to take part in market rallies but may achieve an underperformance in low-volatility or range-bound markets.
Finally, Fidelity Yield Enhanced Equity ETF (FYEE) is intended to make a relatively high distribution yield by participating in a dynamic covered call writing. Such an approach enables the investors to take advantage of the increased income. However, it puts a positive limit on the performance of the equity portfolio in case the market jumps above the strike price of the call options.
Among the management team of these ETFs, co-managers are Eric Granat, Anna Lester, George Liu, Mitch Livstone, and Shashi Naik, who have a lot of expertise up their sleeves. These ETFs are well priced within the market, with estimated net total expense ratios of 0.48% for FBUF and FHEQ and 0.28% for FYEE.
Fidelity’s Commitment to ETFs and Investments
Fidelity’s ETF portfolio, which consists of approximately 70 products with almost $70 billion in assets, exemplifies the company’s dedication to delivering a wide variety of investment choices. Of these, the launch of the Fidelity Wise Origin Bitcoin Fund (FBTC) is a recent product placeholder indicating Fidelity’s venture into the area of digital product tracking.
Besides ETFs, the firm’s commitment includes a whole range of alternative investment strategies, such as private equity, private credit, real assets, and digital assets. Fidelity remains an innovator, delivering solutions that address the changing needs of investors and emphasizing education for accessibility and performance.
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