Fidelity launches dividend ETF to hedge against rising interest rates
The Fidelity Dividend ETF for Rising Rates (FDRR) is designed to perform in environments of sticky inflation and higher yields, contrasting with popular bond-proxy funds that struggle when rates climb.
Fidelity has introduced the Fidelity Dividend ETF for Rising Rates (FDRR), an investment vehicle engineered to perform in environments of rising interest rates and sticky inflation. The fund screens for dividend-paying stocks that exhibit a positive correlation with the 10-year US Treasury yield, a methodology that contrasts sharply with the popular Schwab US Dividend Equity ETF (SCHD), which typically struggles when yields rise.
The launch follows market indications suggesting a 53% probability of a Federal Reserve rate hike in September. This potential policy shift comes as the 10-year Treasury closed at 4.69 per cent on August 6, 2026, near a 12-month high. Core PCE inflation has also resumed climbing, with the June 2026 index sitting in the 90.9th percentile of the trailing year, reinforcing the case for higher-for-longer rates.
FDRR’s portfolio is heavily weighted towards technology giants, financials, and energy companies. The fund holds significant positions in NVIDIA, Apple, and Alphabet, which together exceed 22 per cent of the portfolio. Other notable holdings include Microsoft, Broadcom, JPMorgan Chase, Bank of America, Goldman Sachs, ExxonMobil, and Chevron.
The fund’s strategy filters out stocks that historically fall when yields rise, up-weighting those that historically rise instead. This approach aims to mitigate the pressure on high-yield equity proxies, whose cash flows compete directly with rising Treasury coupons. Banks are expected to benefit from wider net interest margins as the curve steepens, while energy companies can pass through inflation.
FDRR closed at $69.86 on August 7, 2026, up 15.91 per cent year-to-date. The fund has delivered an 86.14 per cent return over five years, though it carries a higher expense ratio than SCHD and a lower headline yield. Investors are advised to consider tax implications when rotating from existing SCHD holdings, particularly in taxable accounts where embedded gains may be crystallised.
