Many mutual fund investors and those with employer-sponsored retirement plans, such as 401(k) plans are familiar with Fidelity mutual funds and index funds. Several years ago, the Boston-based fund giant got involved in the exchange traded funds (ETFs).
While Fidelity ETFs have a long way to go to catch rivals such as iShares and Vanguard, the company did have $10.67 billion in U.S. assets under management as of Mar. 21, a sum that has been steadily growing over the past several years.
For investors already in retirement or close to getting there, fund fees take on added importance. This is an area where Fidelity has and will likely continue making significant inroads with advisors and investors because Fidelity offers some of the least expensive ETFs on the market. In fact, Fidelity’s sector ETFs are the least expensive on the market. Yes, even cheaper than the rival Vanguard products.
Investors looking for some good retirement funds on the cheap may want to consider some of the following Fidelity ETFs.
Cheap Fidelity ETFs For Retirement: Fidelity Dividend ETF For Rising Rates (FDRR)
Expense Ratio: 0.29%, or $29 annually per $10,000 invested.
The Federal Reserve recently raised interest rates again in 2018, after doing so once earlier this year. Fed watchers believe more rate hikes are coming meaning this generation of retirees faces the specter of higher rates. The Fidelity Dividend ETF For Rising Rates (NYSEARCA:FDRR) provides essential retirement income while guarding against the potential pitfalls of Fed tightening cycles.
FDRR follows the Fidelity Dividend Index for Rising Rates, which is “designed to reflect the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields,” according to Fidelity.
This is not your grandfather’s retirement ETF as highlighted by an almost 25% weight to technology stocks — high relative to many other dividend ETFs. However, the technology sector historically performs well when rates rise. Sectors that do not — such as real estate, telecommunications and utilities — combine for less than 8% of FDRR’s roster.
Cheap Fidelity ETFs For Retirement: Fidelity Limited Term Bond ETF (FLTB)
Expense Ratio: 0.36%
Conventional wisdom dictates that investors should be boosting fixed income allocations near and in retirement, a task made more difficult in Fed tightening regimes. The Fidelity Limited Term Bond ETF (NYSEARCA:FLTB) can help. This actively managed Fidelity fund attempts to beat the Bloomberg Barclays U.S. Government/Credit 1-5 Year Bond Index.
FLTB has a 30-day SEC yield of 2.97%, which is less than what 10-year Treasuries offer, but this Fidelity ETF makes up for it by reducing rate risk. The effective duration on FLTB is 2.73 years, which is lower than what is found on many aggregate bond funds. FLTB’s duration is about half that of comparable bond funds.
Cheap Fidelity ETFs For Retirement: Fidelity Value Factor ETF (FVAL)
Expense Ratio: 0.29%
Value investing is a strategy that merits consideration by retirees because — compared to other individual investment factors — value can offer the potential for dividends and lower volatility. The Fidelity Value Factor ETF (NYSEARCA:FVAL), which is one of several Fidelity single-factor ETFs, follows the Fidelity U.S. Value Factor Index.
FVAL holds 129 stocks, all of which are either large- or mid-cap names. As is the case with some newer value ETFs, FVAL features some sector-level surprises, including a more than 25% weight to tech stocks. So investors mulling FDRR and FVAL may want to pick one, not both. With that technology weight, FVAL is a departure from basic value ETFs, which typically assign their largest sector weight to financials.
FVAL’s price-to-earnings ratio is below 16, implying a significant discount to the S&P 500 — and that this Fidelity fund is living up to its value billing.
Cheap Fidelity ETFs For Retirement: Fidelity Corporate Bond ETF (FCOR)
Expense Ratio: 0.36%
With income being vital in retirement, some investors may want to consider taking on slightly more credit risk to bolster income in the fixed income portions of their portfolios. The Fidelity Corporate Bond ETF (NYSEARCA:FCOR) offers exposure to corporate bonds of varying credit quality and maturities, but nearly three-quarters of this Fidelity ETF’s roster is rated investment-grade.
Like the aforementioned FLTB, FCOR is an actively managed fund. Two-thirds of the corporate bond fund’s holdings are short- or intermediate-term bonds, giving FCOR an effective duration of almost 6.9 years. FCOR looks to top the Bloomberg Barclays U.S. Credit Bond Index and it has a 30-day SEC yield of 3.95%.
FCOR is a global fund with exposure to 17 countries, but the U.S. comprises 77% of this ETF’s geographic exposure.
Cheap Fidelity ETFs For Retirement: Fidelity MSCI Consumer Staples ETF (FSTA)
Expense Ratio: 0.084%
This idea is a double-edged sword. Due to the sector’s reputation for above-average dividends and below-average volatility, consumer staples stocks are often widely embraced by retirees. However, the sector can encounter headwinds as interest rates rise, something the market is pricing in this year as highlighted by a year-to-date loss of almost 10% for the Fidelity MSCI Consumer Staples ETF (NYSEARCA:FSTA).
That decline could give consumer staples the feeling of a value sector, but as FSTA’s price-to-earnings ratio of nearly 20 indicates, the group is still not substantially discounted against the S&P 500. Adding to the near-term murkiness is that FSTA’s dividend yield is 2.99%, below what investors get on 10-year Treasuries.
Additionally, this Fidelity ETF is the cheapest consumer staples ETF on the market.
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Todd Shriber does not own any of the aforementioned securities.