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Portfolio Manager Insights
Redefining income investing without sacrificing the long term
As money market yields fall, some income strategies prioritize headline yield over capital durability, says Fidelity’s Eric Granat. Fidelity Yield Enhanced Equity ETF (FYEE) was built to address that trade-off, seeking sustainable income with continued equity-market participation.
- According to Fidelity Portfolio Manager Eric Granat, investors seeking options-based income face an artificial trade-off: pursuing higher annual yield or participating in long-term market appreciation – but not both. He notes that this tension has led some strategies, in the race to replace cash yields, to rely on aggressive option selling, often at the expense of growth.
- “While these approaches may generate an attractive yield in the short term, they can quietly limit principal growth over time, undermining the very capital investors depend on for long-term capital appreciation,” says Granat, who co-manages Fidelity® Yield Enhanced Equity ETF with Shashi Naik, George Liu and Anna Lester.
- Granat explains that the fund was designed with a different objective: responsibly harvesting option premiums without sacrificing total-return potential. Rather than maximizing yield at any cost, the strategy takes a balanced approach, targeting a 6% to 8% yield while seeking to preserve equity upside, he says.
- Granat adds that the strategy targets call options roughly 2% to 4% above current stock prices, allowing the portfolio to generate income while still participating in rising markets. The fund does not, however, synthetically sell stocks through in-the-money calls to manufacture artificially high dividends for shareholders.
- This distinction is critical, according to Granat. “We’re intentional about how income is generated,” he says. “Rather than selling call options that offer minimal upside opportunity, we focus on producing income aligned with long-term growth potential.”
- The fund’s income comes from a combination of equity dividends and premiums from the sale of out-of-the-money call options – a structural difference he says tends to support greater capital durability over time.
- Granat notes that, since inception on April 9, 2024, through April 30, 2026, the fund has delivered strong total performance even without dividend reinvestment, a characteristic he highlights as potentially appealing to investors who rely on portfolio income to support everyday expenses (past performance does not guarantee future results).
Featured Fund
Fidelity Yield Enhanced Equity ETF (FYEE)
Fidelity Yield Enhanced Equity ETF seeks current income while maintaining prospects for capital appreciation.
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Portfolio Manager Insights
Redefining income investing without sacrificing the long term
As money market yields fall, some income strategies prioritize headline yield over capital durability, says Fidelity’s Eric Granat. Fidelity Yield Enhanced Equity ETF (FYEE) was built to address that trade-off, seeking sustainable income with continued equity-market participation.
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For specific fund information such as standard performance and holdings, please go to the "Funds Managed" link on this page.
Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice, and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security, sector, or investment strategy.
Fidelity does not provide legal or tax advice and the information provided herein is general in nature and should not be considered legal or tax advice. Consult with an attorney or a tax professional regarding your specific legal or tax situation.
Past performance and dividend rates are historical and do not guarantee future results.
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Sector funds can be more volatile because of their narrow concentration in a specific industry. Growth stocks can perform differently from other types of stocks and the market as a whole and can be more volatile than other types of stocks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. • Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. • In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit, and default risks for both issuers and counterparties. • Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. • Floating-rate loans may not be fully collateralized and therefore may decline significantly in value. • The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. • The securities of smaller, less well-known companies can be more volatile than those of larger companies. • The funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. • Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Although the companies that the fund invests in may be highly leveraged, the fund itself does not use leverage as an investment strategy. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.
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