2 Fidelity ETFs That Are Perfect For Retirement Income

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In light of the economic, demographic and health quality changes that American retirees currently face, certain rules of thumb that many financial professionals have sworn by for decades are due for re-evaluation. The “100 Minus Your Age” rule is one example. The cookie cutter approach toward portfolio structure increasingly lacks relevance in contemporary American society in terms of life expectancy, inflation, taxes and a host of other parameters that render it inadequate for many retirees.

Nevertheless, there are still millions of retirees who are heeding their longtime financial advisors, many of whom may still recommend the 100 Minus Your Age rule and other antiquated practices. Regardless of one’s opinion on the topic, some portfolio exposure to bonds is still a strong consideration for a vast majority of retirees, with risk tolerance a major factor in that decision. Those who might have taken huge losses from panic selling in 2008 may be particularly gun shy about future equity allocations of any appreciable size. At least a modicum of exposure to bonds in an equity-heavy portfolio can be considered prudent for volatility mitigation if no other reason.

Founded in Boston shortly after WWII, Fidelity Investments has been providing financial services for the past 80 years. The firm has a large catalog of mutual funds and exchange-traded funds (ETFs) to suit a wide spectrum of investors’ risk tolerances and objectives. Two that are worth consideration for those looking for bond ETFs that offer solid income on both ends of those spectrums are the Fidelity Low Duration Bond Factor ETF (CBOE: FLDR) and the Fidelity Enhanced High Yield ETF (NYSE: FDHY).

Key Points in This Article:

• Bond exposure is still a good idea for wealth preservation in retirement.
• These two Fidelity ETFs provide tremendous yield and broad exposure.
• Should ETFs be a part of your investment strategy? Why not meet with a financial advisor near you for a complete portfolio review? Click here to get started today. (Sponsored)

Fidelity Low Duration Bond Factor ETF

The biggest threat to a bond portfolio are interest rate fluctuations. The Fidelity Low Duration Bond Factor ETF (CBOE: FLDR) is a passively managed ETF designed for individual investors to avail themselves of a portfolio with a quick bond turnover whenever interest rate changes in the market pose a threat to negatively impact principal. It tracks and replicates a minimum of 80% of its portfolio with the Fidelity Low Duration Investment Grade Factor Index as its benchmark, and generally holds short to medium maturity (under 10 years) investment grade bonds for only 12 months.  Description information at the time of this writing includes:

Yield	5.14%
Net Assets	$888.96 million
Beta	0.13
Expense Ratio	0.15%
Inception date	6-12-2018
Average Daily Volume	208,056 shares
1-year Return	5.47%
3-year Return	5.01%
5-year Return	2.97%
Bond Holdings	325
Average Credit Rating	AA-
Weighted Coupon	5.02%

Bond categories: 83.26% corporate and 12.34% government bonds with the balance in cash.

Rating breakdown: AAA: 17.13%, AA: 38.25%, A: 41.95%, BBB: 2.67%

Top 5 holdings:

• National Australia Bank Ltd.: 2.01%
• US Treasury Notes at 3.50%: 1.59%
• US Treasury Notes at 4.25%: 1.51%
• Citibank, N.A.: 1.45%
• US Treasury Notes at 3.875%: 1.38%

Fidelity Enhanced High Yield ETF

Although many individual investors who buy bonds or bond funds do so in order to avoid having to track fluctuations in the market, professional bond traders trading large blocs of bonds can often generate impressive returns when managing profits in basis points. Although higher yielding bonds are often commensurate with higher risk of default, active portfolio management mitigates that risk to a significant degree. 

The Fidelity Enhanced High Yield ETF (NYSE: FDHY)  is actively managed by Fidelity’s Benjamin Harrison, Jared Beckerman and Rahul Bhargava. They use the ICE® BofA® BB-B US High Yield Constrained Index for their benchmark. Focusing on high yield, below investment grade bonds, FDHY will hold a minimum of 80% of “junk” bonds in its pursuit of higher income while managing default risk. Average duration is one to five years. 

Yield	6.66%
Net Assets	$370.07 million
Beta	0.82
Expense Ratio	0.35%
Inception date	6-12-2018
Average Daily Volume	43,046 shares
1-year Return	8.20%
3-year Return	5.93%
5-year Return	4.83%
Bond Holdings	315
Average Credit Rating	B+
Weighted Coupon	6.94%

Bond categories: Corporate: 90.52%; balance in cash

Rating breakdown: BBB: 3.35%, BB: 43.89%, B: 47.19%, Below B: 3.44%, Unrated: 2.14%

Top 5 holdings:

• CoreWeave: 1.09% portfolio weight
• Mineral Resources Ltd.: 1.08%
• Enova Int’l Inc.: 1.04%
• CVR Partners LP & CVR Nitrogen Finance Corp.: 1.03%
• LiveNation Entertainment Inc.: 0.99%

While many analysts believe that the 100 Minus Your Age rule probably needs to be updated with a larger equity portion (some suggest revising it to “130 Minus Your Age”), the bond side of the ratio is still a factor for many portfolios. FDHY and FLDR cover both ends of the risk reward ratio, so some combination of the two can accommodate many portfolios with minimal fuss. 

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