Fidelity Launches Three Actively Managed Liquid Alts ETFs

Fidelity Investments today announced the launch of three actively managed liquid alternatives (alts) ETFs: Fidelity Dynamic Buffered Equity ETF (FBUF), Fidelity Hedged Equity ETF (FHEQ), and Fidelity Yield Enhanced Equity ETF (FYEE). The options-based ETFs are listed on CBOE and available commission-free for individual investors and financial advisors through Fidelity’s online brokerage platforms today, adding to Fidelity’s $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,” said Bill Irving, Head of Fidelity Asset Management Solutions at Fidelity Investments. “The new options-based equity strategies seek to offer risk mitigation, volatility reduction, or yield enhancement in a familiar ETF wrapper, backed by Fidelity’s legacy of active management.”

Underlying each ETF is a common core U.S. equity strategy that seeks to outperform the S&P 500 Index. This strategy leverages a multifactor model to help select companies with desirable fundamental characteristics, including attractive valuations and strong quality metrics. The portfolio construction aims to keep the fund’s risk characteristics similar to those of the benchmark. Each ETF combines this core equity portfolio with a distinct options-based overlay, seeking to add defensiveness or enhance yield.

• FBUF combines call-writing and put-buying overlays to create a dynamic “collar” overlay. The resulting strategy is defensive; it aims to provide good downside protection but may give up some upside participation.
• FHEQ aims to protect against sudden and meaningful market drawdowns, while still participating in sharp market rallies, by buying put options at various expiries and strikes. Because this strategy strictly buys protection, it may lag the market if there is low volatility or the market moves sideways.
• FYEE seeks to deliver an attractive distribution yield by harvesting option premia from dynamic covered call writing. In exchange for the benefit of the higher distribution yield, there is 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. The products are competitively priced with the estimated net total expense ratio for FBUF and FHEQ being 0.48%, and FYEE being 0.28%.