Fidelity Investments launched its first options-based ETFs as part of an ongoing push to provide its clients with greater access to more alternative solutions. 

The Fidelity Dynamic Buffered Equity ETF (FBUF), the Fidelity Hedged Equity ETF (FHEQ), and the Fidelity Yield Enhanced Equity ETF (FYEE) each start with an underlying common core U.S. equity strategy. The goal of the strategy is to outperform the S&P 500. 

From there, the three funds differ in investment styles and goals, according to Bill Irving, head of Fidelity Asset Management Solutions at the Boston-based firm. 

The hedged equity ETF looks to protect against any sudden and meaningful market drawdowns, Irving said. At the same time, it tries to get involved with any market rebounds by purchasing put options that expire at varying expiries and strikes, he added.

“Since the strategy buys protection, it can lag the market, when there’s not much volatility,” Irving said.

The enhanced equity ETF delivers positive distribution yield through harvesting options that originated through covered call writing, according to Irving. In exchange for sacrificing equity upside, the investor can receive distribution yield, he said. A cap limits the equity performance if it exceeds the call option strike price. 

The third ETF brings together both call-writing and put-buying overlays and creates what Fidelity referred to as a “collar” overlay. It is a defensive strategy that includes downside protection in exchange for some upside protection. 

“These are the three flavors that we have in the market, and we’ve tried to construct them in a differentiated way compared to some of the other offerings in the market,” Irving said.

The funds can work together or independently. Either way, they each serve a unique purpose within an overall portfolio, he said.

“Each of them has a role to play in the portfolio and the choice of which to use depends on your view of the future market environment,” he said. “So, I think, depending on your view of the market, one or the other of these products could play a role in an overall diversified portfolio.”

The three are the latest liquid funds that Fidelity launched starting last year, when it introduced the Fidelity Hedged Equity Fund (FEQHX). The firm now has three liquid mutual funds and three liquid ETFs. 

The firm is focusing on liquid-based investments because they are the fastest-growing funds, Irving said.

“We’re trying to bring access to those parts of the market that traditionally have only been available … in the institutional portfolios and making that available to a broader array of investors,” he said.

The firm is listing the ETFs on the Cboe BZX Exchange (CBOE). Individual investors and advisors can access them through Fidelity’s online brokerage platforms commission-free. The buffered and hedge equity ETFs each have an expense ratio of 0.48% while the enhanced equity ETF is 0.28%.

Advisors can use the new ETFs to help their clients wade through any turbulence that may lie ahead in the economy, Irving said.

“If you can get the same returns but take less risk that means a less bumpy ride for your investors which allows them to stay the course in the market,” he said. “It is an unfortunate situation when an investor gets nervous and bails out of the market, just after there’s a big drawdown and misses the subsequent rally in the market.”