Fidelity Dividend ETF for Rising Rates

FDRR

Market cap $619M

Fidelity Dividend ETF for Rising Rates is marketed as a hedge against rising rates but is heavily concentrated in tech stocks. FDRR trades at an elevated P/E ratio near 29x, exposing investors to significant multiple compression risk if rates rise. Despite its theme, FDRR's sector allocation and top holdings suggest it may underperform during prolonged periods of higher interest rates.

Fidelity Dividend ETF for Rising Rates is primarily invested in large-cap dividend stocks correlated to 10-year U.S. Treasury yields. Despite its strategy and strong dividend growth, FDRR has underperformed the benchmark during the recent period of rising rates. FCPI, another Fidelity ETF with a strategy focused on inflation, has the same expense ratio, similar trading volumes, and a more convincing track record.

FDRR invests in dividend stocks with positive return correlation to rising rates, but its heavy tech weighting increases downside risk in downturns. The fund's large-cap focus ensures dividend stability, though its long-term correlation to rising rates is more evident. Despite strong total returns and tech growth potential, FDRR's low defensive sector exposure raises volatility concerns.

Fidelity is one of the leading brokerage firms that offers a wide range of low-cost ETFs.

Fidelity Dividend ETF For Rising Rates (FDRR) focuses on dividend stocks with a positive correlation to 10-year U.S. Treasury yields. FDRR is heavy in technology, with a sector breakdown close to the S&P 500, and has value characteristics. FDRR's dividend growth has outpaced inflation, which is a good point.

Dividend ETFs often appeal to investors seeking reliable or elevated income opportunities. Before investing, advisors and investors should understand two core elements of dividend ETFs.

Fidelity Dividend ETF for Rising Rates invests in large and mid-cap companies with a dividend growth profile and positively correlated to rising Treasury yields. A historical FDRR ETF underperformance relative to alternative dividend growth ETFs is disappointing. Declining rates could add volatility to the strategy.

The Fidelity Stocks for Inflation ETF and Fidelity Dividend ETF For Rising Rates funds are designed for an inflationary environment. The former, FCPI, focuses on fundamentals and momentum, while the latter, FDRR, seeks dividends and correlation with treasury yields. FCPI has outperformed FDRR since its inception, but both funds have lagged the S&P 500 index.

The debate around economic resilience and the direction of inflation and interest rates continues into summer. Fidelity offers an array of ETFs to reflect your portfolio's position on the path of interest rates looking ahead.

Fidelity Dividend ETF for Rising Rates invests in companies expected to perform well in a rising interest rate environment. The fund has underperformed historically raising questions about the effectiveness of its strategy with an outlook for rates to decline going forward. We recommend investors to avoid FDRR while considering alternative dividend ETFs.