Fidelity Corporate Bond ETF FCOR’s strong team and below-average fees support a Morningstar Medalist Rating of Bronze.

This team boasts experienced leadership and a deep bench, despite a recent manager retirement. David Prothro, who had comanaged this strategy since its late-2014 inception, retired at the end of 2021. This was a well-planned retirement. Prothro was joined on the management roster by former corporate credit research head Matthew Bartlett in October 2016 and quantitative researcher Ben Tarlow in October 2019. Tarlow replaced original comanager Michael Plage, who now runs diversified bond strategies at the firm. Jay Small joined in 2021, having previously managed Fidelity’s fixed-income index strategies, bringing a background in fixed-income trading. The current trio of comanagers have contributed to the firm's fixed-income efforts for more than a decade each. They are backed by two dozen investment-grade corporate analysts along with 21 high-yield analysts, as well as numerous research associates, quant analysts, and traders.

The team's research-driven process has some strengths, but some structural challenges and mixed calls have held it back. The managers do not make big macro bets, keeping the portfolio's duration within 10% of that of its Bloomberg US Credit Index benchmark while limiting its exposure to below-investment-grade credits to the single digits. Instead, they rely on credit research focused on company and issue fundamentals and their relative value assessments to build the portfolio. Relative to its bogy and corporate bond Morningstar Category peers, the team significantly overweights BBB-rated credits, specifically in banks and REITs. Still, it isn’t clear the timing of these allocations and security selection within BBB rated credit has paid off as much as one would expect in the risk-on markets of recent years such as 2017 and 2021. The managers balance this positioning typically with a large sleeve of cash and Treasuries; this provides liquidity but can also be a drag on the portfolio in strong corporate credit markets.

This strategy has turned in mixed results, but its below-average fees should help it outperform overtime. From October 2019 through April 2023, the exchange-traded fund's 0.9% annualized loss was better than its Bloomberg US Credit Index benchmark by 10 basis points but trailed the median peer (comparing distinct funds) by 10 basis points. Still, the team has done much better in early 2023 avoiding the worst of the banking crisis through avoiding Credit Suisse AT1s and Silicon Valley Bank debt. The ETF’s 4.5% year-to-date return through April 2023 beat its bogy and median peer by 20 and 10 basis points, respectively.

Analyst Rating

Attractive fees and a strong team should make this BBB focused corporate bond ETF a solid choice.

Senior Analyst

Mike Mulach

The strategy’s research-driven process has some solid characteristics, but mixed calls and structural challenges limit it to an Average Process rating.  

The comanagers mix bottom-up security selection with macroeconomic views to curate a portfolio of core investment-grade corporate bonds. They source ideas from the team's seasoned credit analysts and include modest single-digit allocations to high yield along the portfolio edges if valuations are attractive. While duration is kept close to the fund's Bloomberg US Credit Index benchmark, the strategy's profile has historically held a much larger allocation to BBB rated bonds at the expense of AA and A rated issues as well as financials (lately expressed through banking and REIT sector overweightings) when compared with that bogy. Still, it isn’t clear the strategy’s timing of overweighted positions and its security selection within BBB credit has paid off in the risk-on markets of recent years. 

The strategy faces some structural challenges: Both the ETF and the mutual fund vehicles typically carry more cash and U.S. Treasury exposure than corporate bond category peers; this can help during credit selloffs but can hamper the strategy when corporate credit does well. The ETF’s smaller size can also result in a materially different credit quality profile than its mutual fund sibling because of differences in cash flows. While size can be a challenge, the ETF has replicated the portfolio of its mutual fund sibling much more closely since late 2019 when the SEC approved Rule 6c-11 (ETF Rule), which allows the team to create custom creation/redemption baskets.

Average

Process

The strategy's experienced managers and sizable research team support an Above Average People Pillar rating.

This team boasts experienced leadership and a deep bench, despite a recent manager retirement. David Prothro, who has comanaged this strategy since its late-2014 inception, retired at the end of 2021. This was well-planned. Prothro was joined on this management roster by former corporate credit research head Matthew Bartlett in October 2016 and quant researcher Ben Tarlow in October 2019. Tarlow replaced original comanager Michael Plage, who now runs diversified bond strategies at the firm. Jay Small joined in 2021, having previously managed Fidelity’s fixed-income index strategies, bringing a background in fixed-income trading. The managers are seasoned industry participants and have contributed to fixed-income efforts at the firm for at least a decade each, serving as credit or quant analysts and managers on other corporate-bond-centered strategies prior to their appointments here. For example, Bartlett functioned as the head of credit research before assuming his responsibilities on this fund.

The comanagers benefit from expansive research capabilities. The ETF is backed by a team of nearly two dozen investment-grade credit analysts, plus additional research associates. The team has been stable except for some 2022 turnover from the team’s REIT analysts. A high-yield bench of 21 analysts also contributes to the portfolio, while many quant analysts and traders round out the team.

Above Average

People

Fidelity earns an Above Average Parent rating because of its ability to stay ahead of its competition.

The firm's successful stock-picking mutual funds fueled its rise to prominence, and it has adapted well to investor preferences that have shifted markedly over the past two decades. Index funds and exchange-traded funds have garnered most of the industry's flows as money has gushed from actively managed products—Fidelity's included. Yet overall, the asset-management division has continued to achieve positive organic growth by introducing or maintaining aggressive pricing on its own suite of passively managed funds and expanding its menu of client-demanded investment structures, such as managed accounts and collective investment trusts. These moves are made possible by the firm's strong distribution network, scale, established brand, and willingness to tolerate losses on some products in pursuit of broader strategic objectives.

The firm is not without blemishes. It could stand to rationalize its lineup of active equity funds and do better to maintain continuity in an equity fund's portfolio construction as the fund's leadership inevitably changes.

Overall, the firm has served its funds' investors well. It boasts a topnotch fixed-income division and remains home to some of the industry's most talented equity managers and a strong team supporting its well-run target-date series.

Parent

Fidelity Corporate Bond ETF

FCOR is an actively managed USD corporate bond fund. It aims to have similar interest-rate risk as the Barclays US Credit Bond Index.

PIMCO Investment Grade Corporate Bond ETF

Aptus Defined Risk ETF

Franklin Investment Grade Corporate ETF

Goldman Sachs Access Investment Grade Corporate Bond ETF

Inspire Corporate Bond Impact ETF

Principal Investment Grade Corporate Active ETF

iShares Interest Rate Hedged Long-Term Corporate Bond ETF

iShares Investment Grade Bond Factor ETF

iShares 5-10 Year Investment Grade Corporate Bond ETF

John Hancock Corporate Bond ETF

American Century Diversified Corporate Bond ETF

FlexShares Credit-Scored US Long Corporate Bond Index Fund

iShares iBoxx $ Investment Grade Corporate Bond ETF

iShares BBB Rated Corporate Bond ETF

iShares Interest Rate Hedged Corporate Bond ETF

iShares Inflation Hedged Corporate Bond ETF

Mobeus Income & Growth 2 VCT PLC

Invesco Fundamental Investment Grade Corporate Bond ETF

iShares Aaa-A Rated Corporate Bond ETF

Schwab 5-10 Year Corporate Bond ETF

FlexShares Credit-Scored US Corporate Bond Index Fund

SPDR Portfolio Corporate Bond

M&A was almost dormant in 2023. In the US, as a proportion of the market value of the benchmark equity indices, it fell to its lowest level in 20 years, according to McKinsey. Credit investors are not traditionally supposed to be fans of M&A, and it's true we are wary of leveraging M&A, where debt is loaded onto balance sheets to buy competitors. We are seeing a comeback for M&A that we think is likely to continue through 2024.

The Credit Opportunity In M&A

VanEck Fallen Angel High Yield Bond ETF

MicroSectors U.S. Big Banks Index -3X Inverse Leveraged ETN

MicroSectors U.S. Big Banks Index 3X Leveraged ETN

Invesco BulletShares 2023 High Yield Corporate Bond ETF

Invesco BulletShares 2024 High Yield Corporate Bond ETF

Invesco BulletShares 2025 High Yield Corporate Bond ETF

Invesco Bulletshares 2026 High Yield Corporate Bond ETF

Invesco BulletShares 2027 High Yield Corporate Bond ETF

iShares Fallen Angels USD Bond ETF

Fidelity High Yield Factor ETF

Franklin Liberty High Yield Corporate ETF

First Trust Municipal High Income ETF

First Trust Nasdaq Bank ETF

GS ETF Trust Shs Access High Yield Corp Bond Fund

iShares US & Intl High Yield Corp Bond ETF

iShares BB Rated Corporate Bond ETF

VanEck High Yield Muni ETF

Recent uncertainty, instigated by the issues seen across the financial sector, has led to a change in investment flows seen across exchange traded funds. A change in investment flows can be seen over the month of March as equity market volatility has increased.

ETF Flows, The Winners And Losers In Volatile Markets

Fidelity Total Bond ETF

Fidelity Low Duration Bond Factor ETF

Fidelity Limited Term Bond ETF

BOSTON--(BUSINESS WIRE)-- #ETF--Fidelity Investments launches new active fixed income ETF, Fidelity Preferred Securities & Income ETF.

Fidelity® Expands ETF Suite With Launch of Fidelity Preferred Securities & Income ETF

As money managers consider expanding into actively managed ETFs, investors will be able to access more time-tested strategies to potentially better navigate market shifts.

Active Management Is the Next Evolution in ETFs

News for Fidelity Corporate Bond ETF ETF (FCOR)