The Best Fidelity Bond ETFs to Buy for Monthly Income
The best Fidelity bond ETFs trade like stocks, and they deliver above-average monthly yield with lower volatility.
Fidelity Investments has built one of the most extensive roster of mutual funds the industry. As of April 30, its online screener lists more than 300 mutual funds. For many investors, especially those with a workplace 401(k), Fidelity mutual funds are already familiar.
Many of these have no minimum investment requirements and no transaction fees when traded on Fidelity's brokerage platform. The lineup covers virtually every asset class, including stocks, bonds, commodities and money markets, with a large share of actively managed strategies
That said, the firm has also made significant progress in exchange-traded funds (ETFs), which Fidelity's screener now shows 82 options. Like its mutual fund lineup, the ETF offering spans a wide range of asset classes, including newer additions such as bitcoin and ethereum.
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One of the more developed areas within the lineup of Fidelity ETFs is fixed income. These bond ETFs provide exposure across different issuers such as government, corporate and agency bonds, and across a range of credit qualities and maturities.
While the underlying exposures vary, many share a few common traits, including reasonable fees and monthly distributions, which can be more convenient than the semiannual interest payments typical of individual bonds.
Still, for newer bond investors, choosing the right Fidelity bond ETF can be confusing. Differences in yield, duration and credit risk can materially affect outcomes. Our guide outlines the key metrics to focus on and highlights five Fidelity bond ETFs worth considering for monthly income.
How to pick the best Fidelity bond ETF
Picking the right bond ETF starts with a few personal variables, and the first is your time horizon. A common guideline is to match the average duration of a bond fund to how long you plan to keep the money invested.
Duration measures interest-rate sensitivity. Bond prices move inversely to interest rates, and the longer the duration, the larger that impact. If the two are mismatched, you can run into problems.
For example, if you plan to use the money within three to five years, a long-term bond ETF with a duration of 10 years is not a good fit. A 1% rise in interest rates could translate into roughly a 10% decline in the fund's net asset value (NAV), all else equal.
Longer-duration funds often offer higher yields in normal environments because investors demand compensation for tying up capital for longer periods. But unlike individual bonds, you can't hold a bond ETF to maturity to recover principal. That means price fluctuations matter more. Matching duration to your time horizon helps reduce that risk.
The second factor is your risk tolerance, which largely comes down to credit quality. While bonds are generally less volatile than stocks, they are not risk-free. A bond ETF's stability largely depends on the quality of the issuers it holds.
Investment-grade bonds, rated BBB or higher, tend to be more stable. Within that range, higher-rated bonds like A, AA and AAA are more resilient than BBB. The trade-off is yield. As credit quality increases, yields tend to fall. Lower-quality bonds, often called high-yield or "junk" bonds, offer higher income but come with greater price volatility and default risk.
The third variable is your objective. If your goal is capital appreciation, bonds are usually not the primary tool, aside from niche strategies like convertible bonds. Most investors use bond ETFs for income.
If income is the goal, focus on the 30-day SEC yield. This is a standardized measure that reflects the fund's income after fees over a recent period, annualized. As a rough benchmark, some investors look for yields in the 4% range to align with common withdrawal rules, though actual needs will vary.
Keep in mind that taxes can reduce this income. Bond ETF distributions are typically taxed as ordinary income at both the federal and state level. There are exceptions though. Interest paid on Treasury bonds is exempt from state taxes, and municipal bond ETFs may be exempt from federal and sometimes state taxes.
Because of this, many investors prefer to hold bond ETFs in tax-advantaged accounts such as a Roth IRA. If you are unsure, it may be worth checking with a financial advisor.
How we screened for the best Fidelity bond ETFs
Without knowing a specific investor’s time horizon, risk tolerance or objectives, the approach here was to use Fidelity's built-in screener to narrow the universe based on factors that appeal broadly.
We started with the full list of 383 mutual funds and ETFs and filtered by fund type. This reduced the pool to 64 funds categorized as pure-play fixed income, excluding money market funds and multi-asset allocation strategies.
Next, we capped expense ratios at 0.50%, or about $50 annually per $10,000 invested. Since the 30-day SEC yield is quoted after fees, keeping costs low helps preserve income. This reduced the list to 51 funds.
From there, we prioritized funds with at least a five-year track record. This ensures enough history to evaluate performance across different environments, including rising rates and high inflation in 2022. That brought the list down to 42 funds.
We then applied a size filter, requiring at least $300 million in assets under management. While $50 million is often cited as a minimum threshold, a higher bar helps reduce the risk of ETF closure and improves liquidity. This narrowed the pool to 41.
To ensure meaningful income, we required a 30-day SEC yield of at least 4%. This places the funds in line with prevailing short-term rates and common income targets. After this step, 16 Fidelity bond mutual funds and ETFs remained.
From that group, we focused on ETFs specifically, prioritizing those with low fees and broad diversification. Moreover, active ETFs were not excluded.
In fixed income, active management can play a larger role because the market is less transparent and less liquid than equities, with many bonds trading over the counter rather than on centralized exchanges. This can create opportunities for portfolio managers to add value.
Fidelity Total Bond ETF
- Assets under management: $27.1 billion
- Expense ratio: 0.36%
- 30-day SEC yield: 4.8%
The Fidelity Total Bond ETF (FBND) is Fidelity's actively managed alternative to the widely used "aggregate bond" ETFs. Aggregate bond funds typically track the broad investment-grade market, including U.S. Treasuries, corporate bonds and agency mortgage-backed securities, with an intermediate duration profile.
FBND follows a similar starting point but adds flexibility through active management. In addition to core investment-grade bonds, the fund can allocate up to 20% of its portfolio to higher-yielding segments such as junk bonds and emerging market debt. The goal is to enhance returns while still maintaining an overall duration similar to the Bloomberg U.S. Aggregate Bond Index.
Rather than holding the full U.S. bond market passively, the portfolio managers evaluate credit quality, currency exposure, macroeconomic conditions and relative value opportunities. This allows the fund to tilt toward areas that may offer better risk-adjusted returns.
The portfolio is still broadly diversified, holding more than 4,600 securities. About 68.1% is rated AAA, 25.2% falls within other investment-grade categories and 8.9% is allocated to below-investment-grade issues, or "junk" bonds. This mix reflects a balance between stability and incremental income.
The strategy also makes use of derivatives, including interest rate swaps, credit default swaps, futures and forward contracts. These tools can be used for hedging or to gain exposure more efficiently, and in some cases may introduce modest leverage.
Learn more about FBND at the Fidelity Investments provider site.
Fidelity Corporate Bond ETF
- Assets under management: $352.9 million
- Expense ratio: 0.36%
- 30-day SEC yield: 5.1%
Investors who prioritize income over maximum safety may find Treasury-heavy funds too conservative. If yield is the focus, the Fidelity Corporate Bond ETF (FCOR) is a more direct way to access higher-paying corporate bonds.
The fund primarily invests in investment-grade corporate debt and aims to maintain a duration profile similar to the Bloomberg U.S. Credit Bond Index. That keeps its interest-rate sensitivity in line with the broader corporate bond market.
As an actively managed ETF, it doesn't simply replicate the benchmark. The portfolio managers evaluate credit quality, relative value and security-specific features, and can adjust positioning based on market conditions. The fund also has flexibility to allocate to high-yield bonds and select foreign issuers.
The portfolio is more concentrated than FBND, with 570 holdings. It's largely North America-focused and remains high quality overall, with about 93.4% in investment-grade bonds. About 45% of the portfolio sits in intermediate-term maturities.
Unlike broader bond funds, FCOR has minimal exposure to Treasuries or securitized assets. Corporate bonds make up about 92% of the portfolio. That concentration helps boost yield, but also means higher sensitivity to credit conditions and less diversification.
Like FBND, FCOR can use derivatives such as interest rate swaps, credit default swaps, futures and forward contracts for hedging or efficient exposure. These tools can also introduce modest leverage.
The 5.1% 30-day SEC yield is attractive, though investors should note that corporate bond income is typically taxed as ordinary income, which can reduce after-tax returns.
Learn more about FCOR at the Fidelity Investments provider site.
Fidelity Investment Grade Securitized Income ETF
- Assets under management: $4.7 billion
- Expense ratio: 0.36%
- 30-day SEC yield: 4.4%
Securitized debt is a type of bond created by pooling together loans and packaging them into tradable securities. These can include mortgages, auto loans and other consumer debt. Investors receive payments based on the cash flows from those underlying loans.
You will find securitized assets in most broad bond ETFs, but usually as just one component. For investors looking to isolate this segment, the Fidelity Investment Grade Securitized Income ETF (FSEC) offers a more focused approach.
The fund primarily invests in U.S. government-related mortgage-backed securities issued by agencies such as the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These entities either have explicit or implicit government backing, which keeps credit risk low.
FSEC is actively managed, but like FBND and FCOR, it aims to maintain a duration profile similar to its benchmark, the Bloomberg U.S. Securitized Index. The portfolio managers can adjust holdings based on factors such as relative value, prepayment risk and interest rate expectations.
The strategy also uses derivatives, including interest rate swaps, futures and forward contracts, which can be used for hedging or to gain exposure more efficiently.
This can introduce leverage into the portfolio, which shows up in the fund's current positioning. While it holds about 1,100 securities, all based in North America and largely rated AAA, its notional exposure is about 113% of assets. This indicates that the fund is using leverage to enhance returns.
Because of the government-backed nature of the holdings, credit risk is minimal. The main risk comes from duration. About 81% of the portfolio is in long-term securities, making the fund more sensitive to interest rate changes. Rising rates can lead to price declines, while falling rates can provide a tailwind.
Learn more about FSEC at the Fidelity Investments provider site.
Fidelity Enhanced High Yield ETF
- Assets under management: $568.8 million
- Expense ratio: 0.35%
- 30-day SEC yield: 6.6%
Risk-tolerant investors willing to accept lower credit quality can access higher income through the Fidelity Enhanced High Yield ETF (FDHY).
The fund aims to hold at least 80% of its portfolio in non-investment-grade bonds, defined as those rated below BBB and often referred to as high-yield or "junk" bonds. They offer higher interest payments to compensate for greater default risk.
The portfolio is relatively concentrated, holding just 302 bonds, with about 93% classified as non-investment grade. However, interest rate risk is somewhat reduced by the maturity profile. About 62% of the holdings fall into short-term categories.
Geographically, the portfolio is dominated by North America, with 84.1% of holdings tied to issuers in the region. Sector exposure leans toward energy stocks and industrial stocks, both of which are common in the high-yield market.
There is a real possibility of capital loss if credit conditions weaken or default rates rise. In stable environments, investors are compensated with a higher level of income, reflected in the 6.6% 30-day SEC yield.
Keep in mind that income from corporate bonds is typically taxed as ordinary income, which can reduce after-tax returns in a taxable account.
Learn more about FDHY at the Fidelity Investments provider site.
Fidelity Limited-Term Bond ETF
- Assets under management: $415.6 million
- Expense ratio: 0.25%
- 30-day SEC yield: 4.7%
Investors with a shorter time horizon should generally prioritize bond ETFs with lower duration. This helps reduce the risk that a sudden rise in interest rates leads to meaningful price declines. For that role, the Fidelity Limited-Term Bond ETF (FLTB) is designed to keep sensitivity to interest rates in check.
This actively managed ETF can invest across investment-grade, high-yield and emerging market bonds, but uses the Fidelity Limited-Term Composite Index as a guide. The high-yield allocation is capped at 20%, which helps balance income potential with credit risk.
Like other Fidelity active bond ETFs, the managers evaluate credit quality, valuation and macro conditions when selecting holdings. The fund can also use derivatives such as interest rate swaps, futures and forwards for hedging or more efficient exposure, which can introduce modest leverage.
The portfolio currently holds 1,060 bonds, with about 74% tied to North American issuers. Credit quality remains solid, with 70.6% rated investment grade, 20.9% rated AAA and only 7.7% in high-yield bonds, well below the 20% cap.
A key feature is its maturity profile. The fund targets a dollar-weighted average maturity between two and five years, keeping duration relatively low; 77.5% of holdings currently fall into short-term categories. That positioning helps limit volatility compared to intermediate- or long-term bond funds.
Learn more about FTLB at the Fidelity Investments provider site.
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