Fidelity Unveils Options-Based Liquid Alt ETFs

Fidelity Investments, the ETF issuer with $69 billion in 67 ETFs, has unveiled three actively managed funds that use options-based strategies, tapping into investor demand for a wide variety of income exchange traded products.

The three funds are the Fidelity Dynamic Buffered Equity ETF (FBUF), the Fidelity Hedged Equity ETF (FHEQ), and the Fidelity Yield Enhanced Equity ETF (FYEE), which started trading on April 11. According to the firm’s press release, the fund’s managers will use a “multifactor model” to pick companies with growth potential at an attractive price.

The new ETFs tap into demand from investors for more options-based products after the success of funds like the nearly $34 billion JP Morgan Premium Income (JEPI) and its various copycat funds. While JEPI uses options on fixed income, a variety of income-from-equity ETFs have started in the past year as the trend has taken off.

The three funds will broaden “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.

"Defensive" Strategy

FBUF uses call-writing and put-buying in a “defensive” strategy, protecting from downside losses by sacrificing some upside potential, the press release said. FHEQ also buys put options, but because the “strategy strictly buys protection, it may lag the market if there is low volatility.” 

FYEE also uses call writing, yet "there is an “upside cap” on equity portfolio performance if the market rallies above the option price strike," according to the press release. 

The expense ratio for FBUF and FHEQ are 0.48%, while the fee for FYEE is 0.28%.

The new products come shortly after Fidelity added a $100 servicing charge on buy orders for ETFs on nine firms, including Simplify Asset Management and AXS Investments.

Contact Lucy Brewster at [email protected].