Designed to provide broad exposure to the Total Market (U.S.) ETFs category of the U.S. equity market, the Fidelity Dividend ETF for Rising Rates (FDRR) is a smart beta exchange traded fund launched on 09/12/2016.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

If you’re the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Even though this space provides many choices to investors–think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting–not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is sponsored by Fidelity. It has amassed assets over $287.93 M, making it one of the larger ETFs in the Total Market (U.S.) ETFs. Before fees and expenses, this particular fund seeks to match the performance of the Fidelity Dividend Index for Rising Rates.

The Fidelity Dividend Index for Rising Rates reflects 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.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.29% for FDRR, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 3.01%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Looking at individual holdings, Apple Inc (AAPL) accounts for about 4.69% of total assets, followed by Microsoft Corp (MSFT) and Johnson + Johnson (JNJ).

FDRR’s top 10 holdings account for about 25.02% of its total assets under management.

Performance and Risk

So far this year, the ETF has lost about -0.92%, and is up about 11.03% in the last one year (as of 04/28/2018). FDRR has traded between $27.57 and $32.66 in the past 52-week period.

The ETF has a beta of 0.96 and standard deviation of 11.99% for the trailing three-year period. With about 123 holdings, it effectively diversifies company-specific risk.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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Johnson & Johnson (JNJ): Free Stock Analysis Report
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FID-DIV RR (FDRR): ETF Research Reports
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