Fidelity Sustainable High Yield ETF (FSYD US) - Portfolio Construction Methodology

Core Insights - The Fidelity Sustainable High Yield ETF (FSYD) employs an investment framework focused on USD high-yield corporate bonds, integrating bottom-up credit selection with sustainability criteria to avoid issuers with significant ESG controversies [1] Group 1: Investment Strategy - The ETF targets issuers with improving sustainability practices while avoiding those involved in prohibited activities [1] - Analysts assess business risk, financial policy, cash-flow coverage, asset protection, and covenant strength, including downside recovery analysis and catalysts [1] Group 2: Portfolio Construction - Portfolio construction aims to balance carry with resiliency, diversifying across industries, issuers, and rating buckets [1] - Position sizing is determined by conviction, liquidity, and expected loss, with limits to mitigate single-name and sector concentration [1] Group 3: Risk Management - The management team favors seasoned, covenant-sound bonds and avoids structurally weak structures unless compensation is adequate [1] - Cash and short-duration instruments are utilized to provide flexibility during market dislocations [1] Group 4: Rebalancing Strategy - Rebalancing is conducted to realize relative-value rotations across ratings and maturities, reducing exposure when fundamentals weaken or liquidity risk increases [1]