Cost is one reason why investors may prefer the ETF wrapper over mutual funds for active high-yield bond exposure.
ETFs charge shareholders an expense ratio, which pays for fund management and operations. However, higher expense ratios can eat away at returns for investors. This makes it important that investors consider the total cost of ownership before investing in any fund.
The Fidelity Enhanced High Yield ETF (FDHY ) decreased its expense ratio to 35 basis points from 45 basis points on October 1. The $361 million fund is one of the 10 largest active high-yield bond ETFs by total assets under management.
Notably, FDHY’s recent expense reduction puts the fund among the lowest-cost options when looking at the 10 largest active high-yield bond ETFs, according to ETF Database. highlight the importance of expense ratios, shareholders in FDHY will save an estimated $331K annually with the new expense ratio, based on AUM as of July 31, according to a statement from Fidelity.
Under the Hood of Fidelity’s Active High-Yield Bond ETF
High-yield bond ETFs offer attractive upside potential, and active funds with experienced managers may be particularly well positioned. A passive strategy that simply tracks an index of high yield bonds might miss key information. Conversely, an active strategy like FDHY can further analyze and assess each opportunity.
Fidelity’s active high-yield bond ETF uses a quantitative, rules-based approach to exploit market inefficiencies. The model underpinning FDHY systematically screens for bonds with high return potential and low default probability. It does this using a value- and quality-based methodology.
FDHY has seen over $24 million in net flows since the fund reduced its expense ratio on October 1, as of December 6.
FDHY is part of Fidelity’s Enhanced ETFs suite. Other funds in the Enhanced ETF suite include the Fidelity Enhanced Large Cap Core ETF (FELG ), the Fidelity Enhanced Large Cap Value ETF (FELV ), and the Fdelity Enhanced Mid Cap ETF (FMDE ).
For more news, information, and analysis, visit the ETF Investing Channel.
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.
