Exchange Traded Funds (ETFs)

This Diversified Fund Focuses on Dividends

The Fidelity Dividend ETF for Rising Rates (FDRR) tracks an index that reflects the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to grow their payouts and have a positive correlation of returns to increasing 10-year U.S. Treasury yields.

Although an increase in interest rates usually hurts dividend stocks, FDRR’s positive correlation to treasury yields and sector neutrality help protect investors’ returns. In particular, some analysts indicate that FDRR’s exposure to the financial sector reduces the risk associated with rate hikes.

Furthermore, U.S. dividend growth remains impressive even as interest rates are rising. Global consulting market IHS Markit is forecasting that quarterly dividends declared by firms in the S&P 500 will top $115 billion in the current calendar quarter to notch a 2.3% jump from the $112.5 billion declared in Q1.

The fund has a distribution yield of 3.03% and an expense ratio of just 0.29%.

FDRR selects from 1,000 of the largest U.S. stocks and the largest 1,000 developed-market international stocks by capitalization. These stocks then are scored according to their dividend yield, dividend payout ratio, dividend growth, etc. FDRR then invests at least 80% of its $298.6 million total assets in more than 100 qualified holdings. The fund invests primarily in U.S. stocks, with a 10% maximum on international stocks. As a means of diversification, FDRR also does not invest more than 35% in any individual sector.

Over the last year, FDRR has returned 10.51%. Year to date, FDRR has returned 0.74%.

FDRR’s top five holdings are Apple (AAPL), 5.04%; Microsoft (MSFT), 4.13%; JPMorgan Chase (JPM), 2.36%; Johnson & Johnson (JNJ), 2.36%; and Intel (INTC), 2.31%.

FDRR is 25% invested in information technology. 15% in financials, 13% in health care, 12% in consumer discretionary and 10% in industrials. In addition, FDRR is largely skewered towards large- and mid-cap companies, as they make up approximately 95% of the fund’s portfolio.

For investors seeking an investment in a diversified fund built for a rising-rate interest environment, the Fidelity Dividend ETF for Rising Rates (FDRR) could be a great choice.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.