Fidelity Investments has introduced three actively managed ETFs: The Fidelity Dynamic Buffered Equity ETF (ticker FBUF), Fidelity Hedged Equity ETF (FHEQ) and Fidelity Yield Enhanced Equity ETF (FYEE).
The options-based ETFs are available commission-free to individual investors and financial advisors using Fidelity's brokerage platforms; they also add to Fidelity's current $14 billion alts lineup.
"The launch of these ETFs broadens Fidelity's liquid alts offering at a time when we're seeing increased client demand for downside protection and enhanced income while invested in equity markets," according to Bill Irving, who heads Fidelity Asset Management Solutions.
The options-based equity strategies, back by Fidelity's active management, seek to offer risk mitigation, volatility reduction or yield enhancement, Irving added.
Underlying each ETF is a common core U.S. equity strategy that seeks to outperform the S&P 500 Index. The strategy uses a multifactor model to help the firm select companies with desirable fundamental characteristics, including attractive valuations and strong quality metrics, Fidelity said.
The portfolio construction aims to keep the fund's risk characteristics similar to those of its benchmark. Each ETF combines a core equity portfolio with an options-based overlay, seeking to add defensiveness or enhance yield. The main characteristics of the new funds, according to the firm, are as follows:
- The Fidelity Dynamic Buffered Equity ETF combines call-writing and put-buying overlays to create a dynamic "collar" overlay. The resulting strategy is defensive, aiming to provide good downside protection while possibly giving up some upside participation.
- The Fidelity Hedged Equity ETF aims to protect against sudden and meaningful market drawdowns while participating in sharp market rallies by buying put options at various expiries and strikes; it may lag the market if there is low volatility or the market moves sideways.
- The Fidelity Yield Enhanced Equity ETF seeks to deliver an attractive distribution yield by harvesting option premiums from dynamic covered call writing; in exchange for the higher distribution yield benefit, the fund includes an upside cap on equity portfolio performance if the market rallies above the call option strike price.
The portfolio management team for all three ETFs includes long-tenured co-managers Eric Granat, Anna Lester, George Liu, Mitch Livstone and Shashi Naik.
