Fidelity Adds Bond Funds To Pipeline

July 29, 2013

Fidelity filed paperwork to debut three actively managed bond ETFs.

Fidelity, the financial advisor with just one ETF currently listed, filed regulatory paperwork to bring three actively managed bond funds to market, the latest move from a firm looking to expand its footprint in the $1,540 trillion U.S. ETF market.

The filing, detailing the Fidelity Total Bond ETF, the Fidelity Investment Grade Bond ETF, and the Fidelity Limited Term ETF comes just days after the firm put 10 index-based U.S. equity sector ETFs into the regulatory pipeline.

Fidelity, which sponsors just one fund that came to market almost 10 years ago—the Fidelity Nasdaq Composite Tracking Stock ETF (NasdaqGM: ONEQ)—has made plain in regulatory filings over the past 18 months that it will make a concerted push into active as well as indexed ETFs.

Through an actively managed investment strategy, these three bond funds will each take a different aim at serving up access to returns on bond investments at a time when yield rates are slumping and investments in debt securities can feel risky without the wrapper of an ETF’s investment strategy.

All three funds will be focused on U.S. debt, although domestic as well as foreign issuers may be included in the funds’ portfolios. Each may also potentially invest in derivatives (swaps, options, ad futures contracts) to achieve leverage and adjust risk exposure at the discretion of the fund manager.

The Fidelity Total Bond ETF will hold a diversified basket of debt securities, grabbing its constituents from the Barclays U.S. Universal Bond Index and allocating assets to investment-grade, high-yield and emerging markets debt. The fund will invest across maturities as well as sectors.

The Fidelity Investment Grade Bond ETF will use the Barclays U.S. Aggregate Bond Index as its underlying, investing in medium- and high-quality debt securities, or “investment grade” securities. The prospectus mentioned that the fund may also invest up to 10 percent of its allocation to low-quality debt securities.

The Fidelity Limited Term ETF is the only fund of the three that won’t track a Barclays index; instead, it will track Fidelity’s own index, the Fidelity Limited Term Composite Index. The fund’s constituents will include a dollar-weighted portfolio of debt securities with maturity dates of between two and five years.

Fidelity hasn’t yet disclosed tickers or price tags, but it did mention that all three will be initially listed on the New York Stock Exchange’s electronic platform, Arca.


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