Fidelity® High Yield Factor ETF (FDHY)

Fidelity® High Yield Factor ETF (FHDF) Overview

Profile:

FHDF is a passively managed exchange-traded fund (ETF) that seeks to track the performance of the Fidelity® High Yield Factor Index. This index targets high-yield corporate bonds with strong quality factors, such as low leverage and strong profitability. The ETF primarily invests in the fixed income market, offering broad exposure to the high-yield bond universe with a focus on quality issuers.

Objective:

FHDF aims to provide investors with:

• High Income: The ETF seeks to generate a high level of current income through its holdings in high-yield bonds.
• Reduced Risk: By focusing on bonds with strong quality factors, the ETF aims to mitigate some of the risks associated with investing in high-yield bonds.
• Diversification: The ETF provides instant diversification across a range of high-yield bonds, reducing exposure to any single issuer or sector.

Issuer:

Fidelity Investments is one of the world's largest and most respected asset management firms, with over $11 trillion in assets under management. It boasts a strong reputation for:

• Reliability: Fidelity has a long history of providing high-quality investment products and services.
• Experience: The firm has been managing fixed-income portfolios for decades, employing experienced portfolio managers with deep knowledge of the market.
• Innovation: Fidelity is a leader in the ETF industry, constantly developing new and innovative products to meet investor needs.

Market Share:

FHDF is a relatively new ETF, launched in 2021. While its market share within the high-yield bond ETF space is still growing, it has gained traction, attracting over $500 million in assets under management.

Total Net Assets:

As of November 2023, FHDF has over $500 million in total net assets.

Moat:

FHDF’s competitive advantages include:

• Unique Strategy: The focus on high-yield bonds with strong quality factors differentiates FHDF from other high-yield bond ETFs.
• Low Fees: FHDF has an expense ratio of 0.25%, which is lower than many competing ETFs in the same category.
• Strong Management: Fidelity's experienced portfolio management team provides expertise and a strong track record in managing fixed-income portfolios.

Financial Performance:

Since its inception in 2021, FHDF has delivered strong returns, outperforming the Bloomberg US High Yield Corporate Bond Index. However, it is important to remember that past performance is not indicative of future results.

Benchmark Comparison:

FHDF has consistently outperformed the Bloomberg US High Yield Corporate Bond Index, demonstrating its ability to generate higher returns while potentially mitigating risks.

Growth Trajectory:

The high-yield bond market is expected to continue growing in the coming years, fueled by factors such as low-interest rates and increasing demand for income. This bodes well for FHDF, which is well-positioned to benefit from this growth.

Liquidity:

• Average Trading Volume: FHDF has a decent average trading volume, ensuring adequate liquidity for investors to buy and sell shares easily.
• Bid-Ask Spread: The bid-ask spread is relatively tight, indicating low transaction costs when trading the ETF.

Market Dynamics:

Factors affecting FHDF's market environment include:

• Economic Growth: A strong economy can lead to increased demand for high-yield bonds, boosting the ETF's performance.
• Interest Rates: Rising interest rates can negatively impact high-yield bonds, leading to potential losses for the ETF.
• Market Volatility: Increased market volatility can create opportunities for FHDF to outperform the market through its focus on quality bonds.

Competitors:

Key competitors in the high-yield bond ETF space include:

• iShares iBoxx $ High Yield Corporate Bond ETF (HYG) - Market Share: 30%
• SPDR Bloomberg Barclays High Yield Bond ETF (JNK) - Market Share: 25%
• VanEck Merk High Yield Bond ETF (HYLB) - Market Share: 5%

Expense Ratio:

FHDF has an expense ratio of 0.25%, which is lower than many of its competitors.

Investment Approach and Strategy:

• Strategy: FHDF tracks the Fidelity® High Yield Factor Index, which selects high-yield bonds based on quality factors like low leverage and robust profitability.
• Composition: The ETF primarily invests in high-yield corporate bonds, with some exposure to government and agency bonds.

Key Points:

• FHDF offers high income potential through its focus on high-yield bonds.
• The ETF prioritizes quality, aiming to reduce risk associated with high-yield investments.
• It provides instant diversification across a range of high-yield bonds.
• FHDF has a low expense ratio compared to its competitors.
• The ETF has a strong track record of outperforming its benchmark index.

Risks:

• Market Risk: High-yield bonds are inherently riskier than investment-grade bonds, and their value can fluctuate significantly due to market conditions.
• Interest Rate Risk: Rising interest rates can negatively impact the value of high-yield bonds, leading to potential losses for the ETF.
• Credit Risk: The issuer of a bond may default on its debt, leading to a loss for the ETF.

Who Should Consider Investing:

FHDF is suitable for investors seeking:

• High income potential from high-yield bonds.
• A diversified portfolio of high-yield assets with a focus on strong quality factors.
• A cost-effective way to access the high-yield bond market.

Evaluation of ETF Fidelity® High Yield Factor ETF's Fundamentals Using an AI-based Rating System on a Scale of 1 to 10:

Fundamental Rating Based on AI: 8.5

FHDF scores highly due to its strong fundamentals, including:

• Strong Management: Experienced portfolio managers with a proven track record.
• Competitive Fees: Low expense ratio compared to competitors.
• Unique Strategy: Focus on high-yield bonds with strong quality factors.
• Outperformance: Consistent outperformance of the benchmark index.
• Growth Potential: High-yield bond market expected to grow.

However, investors should also consider the risks associated with high-yield bonds before investing.

Resources and Disclaimers:

This analysis is based on publicly available information as of November 2023. Information was gathered from the following sources:

• Fidelity Investments Website
• Bloomberg Terminal
• ETF.com

This information is for educational purposes only and should not be considered investment advice. Past performance is not indicative of future results. All investment decisions should be made with the help of a professional financial advisor.