VIDEO: ETF of the Week: FCOR

Chuck Jaffe: One fund, on point for today. The expert to talk about it. Yes, welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, the head of research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools you need to be a savvier, smarter ETF investor, and to get more details on the new, newsworthy, trending, and timely ETFs that we talk about here.

Todd Rosenbluth, great to chat with you again.

Todd Rosenbluth: It’s great to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The Fidelity Corporate Bond ETF (FCOR).

Chuck Jaffe: FCOR! Fidelity Corporate Bond ETF. We’ve talked about a lot of different types of bonds over the recent weeks, because of course, we’re in a rate change environment.

Why corporate bonds and specifically this fund right now?

Todd Rosenbluth: Well, last week we talked about an aggregate bond active ETF. That was a T. Rowe Price ETF, for folks that didn’t catch that segment. This is an actively managed fixed income ETF from Fidelity. But it’s targeted towards the corporate bond space. We’re finding more advisors [and] more investors want to build their own broadly diversified fixed income exposure.

And so this ETF, FCOR from Fidelity, can give you that active management capabilities targeted towards the corporate bond space, where there’s perhaps the greatest opportunity to sort through that universe to find the companies, the issuers with the strongest reward without taking on that much risk.

And FCOR just passed its 10-year anniversary. So there’s certainly a strong track record, a long track record for folks to dive into, which we can spend some time on.

Chuck Jaffe: Well, let’s spend a little bit of time on that. But also without saying, go listen to last week when we were talking about active management. You were very specific last week that you didn’t just want active management, but that the fund we were looking at was particularly appropriate if you wanted to add active management because it was low cost but quantitative, so it had this very rigid approach.

Fidelity tends to be a little more free flowing, a little more on the manager side of things. So, help us understand that track record, and whether it shows us why we really want to be active, and this kind of active, in corporate bonds.

Todd Rosenbluth: Right. So, the track record for FCOR, the Fidelity Corporate Bond ETF, is relatively strong. It’s outperformed its Morningstar category over the 10-year time period. If you look at individual calendar years, it’s outperforming more often than not. Now what it does is focus on, as you would imagine, are corporate bonds, primarily investment-grade corporate bonds, and primarily within that, bonds rated BBB.

So, that’s the lowest rung of investment-grade credit, where you can find companies that have strong fundamentals that are likely to stay investment grade. You get rewarded if companies stay investment grade as opposed to getting downgraded. It tends to favor more of the financial institutions. At least that’s what it’s been doing in 2024. So, you do have that fundamental bottom-up approach to sorting through the credit universe with this active ETF, as opposed to a quantitative approach.

You’re right, the T. Rowe Price fund that we highlighted last time was a low-cost approach. There’s a slightly higher fee for the active management capabilities that Fidelity’s offering. But folks are quite familiar with Fidelity from an active standpoint from the mutual fund world. This is an ETF that has a 10-year track record. There aren’t a lot of active fixed income ETFs with a 10-year track record. So it’s worth celebrating and taking a closer look at FCOR.

Chuck Jaffe: In terms of expectations, as you pointed out, corporate bonds, but just above the level of high yield or junk bonds. In other words, one tranche above that is the core focus here. What does that do in terms of expectations? You had the aggregate bond fund last week. How many different bond funds are we going to want to do?

And are we doing it because the asset classes perform differently? Are we doing it because, well, we’re a little further out the risk spectrum. So, we’d expect a little bit better returns here.

Todd Rosenbluth: Well, fixed income ETFs are an increasingly larger slice of the ETF pie in terms of flows. So, I want to sprinkle in more fixed income strategies. Actively managed fixed income ETFs are punching above their weight. And they’re more interesting to talk about than necessarily a low-cost index-based category. There are index-based products that are tied to corporate bonds from iShares, from Vanguard, from State Street, among others.

And you should certainly compare FCOR and how it’s performing relative to those lower-cost index-based products. If you’re building a portfolio and you have a low-cost aggregate bond strategy, this could be a way to overweight that exposure to corporate bonds. Corporates are roughly 25% or 30% of the Agg. Most of it is tied to government bonds, Treasuries, agencies, and mortgages, where corporates is a narrower slice.

So, you could overweight that or you could build, combining a couple of active strategies and leaning on somebody and some manager like the Fidelity Corporate Bond ETF to tilt, or to rebuild that portfolio from an investment-grade standpoint.

Chuck Jaffe: Last week, part of our discussion centered around, do you want to be mixing active and passive strategies in a certain space? So again, if somebody’s got their corporates and they’ve got them covered with a passive fund, split that position in corporates between active and passive? Or, you prefer the active, so go active when you get a chance? How do you how do these things play together?

Todd Rosenbluth: So if you’re a fan of active management and you’ve been using active, broadly diversified funds, this might be a good one for you to take a closer look at. If you’ve leaned on active mutual funds historically to get fixed income exposure, you’re going to get that same benefit of active security selection that you get, but with the benefits of an ETF the efficiency, the tradability, the cost structure that you’d find with in a fixed income ETF. If you own a dedicated slice of corporate bonds, decide whether or not this active approach might make more sense for you.

You probably don’t want to have two dedicated corporate bond strategies. You might. This fund is certainly going to be different than than what you’d find in an index-based world. It’s taking advantage of the active capabilities and leaning in on the fundamental research. But there’s lots of use cases, and we think the Fidelity Corporate Bond ETF, now 10 years old, is worth a close look.

Chuck Jaffe: And this is clearly an allocation choice. This is not so much about timing. You’re basically saying if you’re going to diversify your bonds, you’re going to own some corporates. Find a way to do it and do it well. How much of a portfolio do you let this be? Because this is not something that if the rate environment changes a lot, you’re going to be getting out of it, are you?

Todd Rosenbluth: Right, I think I think this is a strategic exposure. Obviously, folks that have more knowledge about credit spreads and comfort in the timing should certainly take a closer look. I don’t have that level of expertise coming into this conversation. Maybe the audience members do, and they’re looking for an a corporate bond ETF to overweight and then move off.

Corporate bonds are roughly 30% of the investment-grade universe, if I use the Agg as my reference point. So, do you want to have more exposure to that because you’re going to get more reward in this current environment? They’re a little bit more credit sensitive as opposed to rate sensitive. That’s up to folks to be able to decide.

But this is one of those good active fixed income ETFs to take a closer look at.

Chuck Jaffe: It’s FCOR, the Fidelity Corporate Bond ETF. The ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff. Thanks so much. We’ll talk to you again next week!

Todd Rosenbluth: I’ll see you soon, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I am Chuck Jaffe. And I’d love it if you check out my hour-long weekday podcast by going to MoneyLifeShow.com, or by searching wherever you find your favorite podcasts.

And if you’re searching for more information and better information on your favorite ETFs, look no further than VettaFi.com. They have all the tools you need there to help yourself and get a better understanding of all the funds you’re investing in.

They’re on X or Twitter at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest, he’s there too. He is at @ToddRosenbluth.

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