Have clients seeking new ideas in the ESG space? In the medium term, many advisors may be looking to meet client goals by finding the right ESG ETF fit for their portfolios, with more options than ever. High yield, for example, is offering some particularly intriguing opportunities like the sustainable high yield ETF FSYD.
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FSYD, the Fidelity Sustainable High Yield ETF, launched in February 2022. That sets the fund up to hit its important three-year ETF milestone in just a few months. The fund’s approach relies on a combination of fundamental and quantitative inputs.
That multifactor model screens over 1,000 high yield bonds for value and quality metrics. It looks to an index to guide the credit quality and risk characteristics of the fund’s investments. The sustainable high yield ETF looks for high yield bonds from global firms that meet Fidelity Investments’ proprietary ESG assessments.
That ESG approach can include assessing an issuer’s environmental profile for factors like water management, carbon and toxic emissions, and vulnerability to climate change. Furthermore, the strategy can invest in issuers that Fidelity Management & Research Company (FMR) believes deliver social or environmental impacts through their business.
According to Fidelity Investment data, the sustainable high yield ETF offered a 6.5% distribution yield as of October 31. Performancewise, the fund has returned 17.6% over one year. So, what role can it play for investors, and why consider it now?
High yield is why. The high yield fixed income category can provide an appealing place for investors to invest their long-held cash, especially as rates and cash yields drop together. Talented managers like those behind FSYD can ably navigate the high yield space, which often requires experience in the space. That could play an important role for investors as dropping interest rates bring cash yields down, too.
With many clients looking for ESG investments right now, too, a high yield ESG ETF could meet their dual goals of sustainability and more aggressive investments. For those looking to get the risk of high yield in an ESG-conscious wrapper, FSYD may be a compelling choice.
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Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
