On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research, Todd Rosenbluth, discusses the Fidelity Investment Grade Securitized ETF (FSEC) with Chuck Jaffe of Money Life. The pair discusses several topics related to the fund to give investors a deeper understanding of the ETF.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. Welcome to the ETF of the Week! Yes, this is the ETF of the Week, where we examine trending, newsworthy, unique, and intriguing exchange-traded funds with Todd Rosenbluth. He’s the Head of Research at VettaFi, and VettaFi.com has a full suite of tools and information that’s going to make you a better investor in ETFs, so check it out at VettaFi.com.

Todd Rosenbluth, it’s great to chat with you again!

Todd Rosenbluth: It’s great to be back!

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The Fidelity Investment Grade Securitized ETF, FSEC.

Chuck Jaffe: FSEC, the Fidelity Investment Grade Securitized ETF. We have to explain a little something here, Todd. Because, investment grade? Everybody understands what we’re talking about. But securitized? Not so much. So, let’s help explain the fund and then why it’s the ETF of the Week.

Todd Rosenbluth: Yeah, so let me just make sure people are on the same page with me, and hopefully you, about what securitized debt is. So, these are mortgage-backed securities, asset-backed securities, or commercial mortgage-backed securities. There are, in fact, numerous acronyms that are used in this space.

Pretty much, if you own a bond ETF or a bond mutual fund, you own treasuries and investment-grade corporate bonds primarily. The rest of the ETF or the mutual fund is made up of these securitized debt securities. We think this is a compelling space. In fact, many of the audience that we had at a recent VettaFi symposium also found this to be a compelling space, as well as active managers.

So, Fidelity has one of the larger, more popular ETFs in this space with FSEC. So, we wanted to dive a little bit closer and have you and the audience understand what this fund is and why this can be compelling now that the Fed has cut interest rates.

Chuck Jaffe: And we need to explain to people that if you like what you hear, whether it’s the Fidelity fund or others, there are not that many in this [category]. There are plenty of funds in the investment grade space, but this specific type of thing — yes, you are looking for securitized, and it is not the same thing.

Does it perform differently? Like, do investment-grade securitized holdings perform differently than investment-grade corporate bonds that you hold without having, you know, to put together a bunch of things to make a security?

Todd Rosenbluth: So yes, these are going to perform differently, or this ETF is going to perform differently, than investment-grade corporate bonds. The corporate bonds are going to be tied more towards credit risk and how comfortable people are in taking on credit risk, as well as the bottom-up individual securities, whereas securitized is going to perform differently.

I want to also clarify: there are some ETFs out there that are targeted, and you can get an ETF that focuses just on mortgages, mortgage-backed securities, or asset-backed securities. I think you can get that as well. This offers – this being FSEC, the Fidelity fund, offers you the benefits of active investment in sorting through a broad, diversified universe of securitized debt.

And we had one of the portfolio managers from this fund on the symposium, and he used the statistic that there are 2 million of these individual securities that he and a team could be potentially choosing from. So that’s how you get the benefits of active management in a team that is looking for the best reward without taking on as much risk within a portfolio.

Chuck Jaffe: Because of that kind of market and the way that market is structured, a fund like this will typically have a little bit higher turnover than an investment-grade fund that somebody is looking at, and it may have a higher expense ratio as a result, because managers need to do it. So, you’re obviously not worried about those things. But, like, what is this fund yielding so that people understand what you might expect to get in yield for this?

Todd Rosenbluth: So, I believe the last I looked, the fund was yielding roughly 4.5%. It might have shifted a little bit. You’re right about turnover. There’s going to be turnover. I’m not concerned about that. You know, within the ETF wrapper, you’re not paying the same level of capital gains the way that you would with the turnover of a mutual fund. In fact, I’m looking at the website right now, and this was, again, February of 2025. It’s done on an annual basis. And the turnover is over 1,000%, which is not something — I don’t believe that’s a typo. That’s just what’s on the fact sheet.

That’s not something that you should be concerned with. You are paying a fee for active management, and so that’s something you should be mindful of—that is going to be a higher fee than what you find for an index-based product. We think you’re getting rewarded for having the active management and the strength of Fidelity’s active management capabilities.

And I just want to throw out there. We’ve talked about active ETFs. And people may wonder, “Why does Todd keep coming back with an active fixed income ETF?” Maybe that was your next question, Chuck, and I stole that from you. We’re seeing demand for active fixed income ETFs in 2025.

We’ve been seeing it for the last few years. But they’re really punching above their weight. Because the heavyweights within the space bring some of their best management into the ETF wrapper. The team behind FSEC also supports mutual funds. They’re now here, and they’ve been for a few years, in the ETF space. That’s just a great thing for many investors.

Chuck Jaffe: It is. I want to clarify the expense ratio. The active management makes it higher than other things in the space. But it’s still in this case only 0.36%, so 36 basis points. So, it’s not an expensive fund to own.

Where does this fit in a portfolio? Because the obvious thing would be: take your investment-grade securities and just give a piece over to something that’s securitized. That’s as opposed to just holding the standard basket if you want to do that. Or if you already have an investment-grade fund, will it hold enough securitized investments, even if it doesn’t specialize in them, that you don’t need to double up? You only want this if you’re looking for an investment-grade addition to the portfolio.

Todd Rosenbluth: So I agree with the first use case, in that if you had targeted exposure to investment-grade corporate bonds, for example, given where credit spreads are, you might find this to be a nice alternative or complement to that.

We find that many people are getting their fixed income exposure through an aggregate bond-based strategy, whether that’s AGG from iShares or BND from Vanguard. Those are index-based fixed income ETFs. If that’s your fixed income exposure, you have relatively low exposure to securitized debt relative to Treasuries and corporate bonds. We think this can be a nice complement to that.

I don’t imagine that many people are building their own bond allocations and having slices to individual segments. They have a certain percentage for treasuries, a certain percentage towards corporates, a certain percentage toward securities. However, if you were doing that, this is a great — and a strong — fund within that space. So, multiple use cases.

Chuck Jaffe: Yeah, and I could see using it in either of those. Last question on this. Obviously, we just saw the Fed start to enter what we expect will be a rate cut cycle that will last for a little while. How would anybody expect securitized investment-grade securities to perform in a rate cut cycle? And we would expect them to ride along with the rate picture for everything else. But better or worse, is there any indication?

Todd Rosenbluth: So, I’m not that knowledgeable to be able to tell you that it’s going to be an outperformer or a stronger performer. I do know that many people have been hiding out in short-term Treasuries. And those are already yielding less. They are likely to continue yielding less than they would as the Fed cuts interest rates. And so we’re seeing people willing to take on investment grade, high-quality exposure. And I think you can get that within the securitized space quite nicely.

Chuck Jaffe: It’s FSEC, Fidelity Investment Grade Securitized. It’s the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff. We’ll see you again next week!

Todd Rosenbluth: See you next week, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yeah, I’m Chuck Jaffe. Why don’t you check out my hour-long weekday podcast? You can find it at your favorite podcast app by going to MoneyLifeShow.com.

And if you want to check out your favorite ETF and get more information and details, no better place to look than VettaFi.com, where they’ve got a full suite of tools that’s going to help you get the information you’re looking for. They’re on Twitter or X at @Vetta_Fi. Todd Rosenbluth, their Head of Research, my guest here on ETF of the Week, he’s on X as well at @ToddRosenbluth.

The ETF of the Week is here for you every Thursday. Make sure you don’t miss an episode by following along on your favorite podcast app. And until next week when we do this again, happy investing everybody!

Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author.

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