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Not every investor wants to beat the market. Some people prefer high-yield portfolios with diversified holdings and low volatility. It's for cases like these that Fidelity put together some quality exchange-traded funds (ETFs) that combine attractive payouts with low expense ratios and positive long-term returns.
Let's take a closer look at three of these funds that generate high yields and provide portfolio diversification. Image source: Getty Images. 1. Fidelity High Dividend ETF The Fidelity High Dividend ETF ( FDVV +0.78% ) focuses on large-cap and mid-cap companies that pay dividends and are expected to maintain or grow them over time.
A 0.15% expense ratio may be a bit higher than average, but it's well compensated by the fund's 2.63% 30-day SEC yield. An annualized return of 13.2% over the past decade indicates that the fund can remain competitive with key benchmarks such as the S&P 500 ( ^GSPC +0.51% ) . NYSEMKT: FDVV Fidelity Covington Trust - Fidelity High Dividend ETF Today's Change ( 0.78 %) $ 0.48 Current Price $ 61.70 Tech is the largest sector in the fund, accounting for almost one-third of total holdings.
If you combine that with financial stocks , that's roughly half of the entire portfolio composition. Dividend-paying hyperscalers like Nvidia , Apple , and Microsoft crowd the top 10 holdings. Higher-yield picks like JPMorgan Chase , Coca-Cola , Best Buy , and Philip Morris also show up in the top 10.
This snapshot reveals a mix of low-yield, high-growth dividend stocks and more mature, high-yield companies with lower volatility. It's a good balance for investors who want the possibility of high returns with reduced volatility. 2. Fidelity Yield Enhanced Equity ETF The Fidelity Yield Enhanced Equity ETF ( FYEE +0.60% ) invests in large-cap stocks that are in the S&P 500 and sells covered calls to generate higher yields.
NYSEMKT: FYEE Fidelity Greenwood Street Trust - Fidelity Yield Enhanced Equity ETF Today's Change ( 0.60 %) $ 0.18 Current Price $ 29.96 Covered calls cap a fund's upside but also provide additional gains if equities remain flat or decline. Fund managers oversee assets and carefully determine the strike prices of various covered calls. The covered call approach explains why the fund has a 9.16% distribution rate despite having low- or no-yield stocks in its top 10 holdings.
None of this Fidelity ETF's top 10 holdings have a dividend yield above 1%, and some have no dividend or a yield below 0.50%. The Fidelity Yield Enhanced Equity ETF has almost 200 holdings and plenty of covered calls. One detail to consider is that since most of the fund's distributions come from options premiums, they will be taxed as ordinary income.
That will result in a higher tax rate, making this Fidelity ETF optimal in a Roth IRA , where you won't have to pay taxes on withdrawals. 3. Fidelity International High Dividend ETF The Fidelity International High Dividend ETF ( FIDI +0.39% ) offers global diversification that can help investors who feel too concentrated in U.S. companies. The fund prioritizes international companies with a high likelihood of raising dividends each year.
It has a 0.18% expense ratio and a 3.89% distribution yield, so the fund's total fees don't weigh much on dividends. Less than 2% of the fund's assets are in tech, in sharp contrast to many U.S. benchmarks, such as the S&P 500. NYSEMKT: FIDI Fidelity Covington Trust - Fidelity International High Dividend ETF Today's Change ( 0.39 %) $ 0.11 Current Price $ 28.30 The fund has six sectors, each making up at least 10% of total holdings, and real estate stocks account for 9% of the fund's total assets.
This allocation indicates true diversification across multiple industries rather than a fund that weighs heavily in a single sector. The top three stocks in this fund -- Equinox , TotalEnergies , and Canadian Natural Resources -- have yields near or above 4%. The Fidelity International High Dividend ETF does not have to rely on covered calls to generate high yields, which results in more favorable tax treatment.
It also means your upside is not capped during a market rally. The fund has produced an annualized 12% return over the past five years, with recent years showing more momentum. For instance, its annualized three-year return currently stands at 19.9%.
Investors seeking international exposure and high yields may want to take a closer look at this fund. JPMorgan Chase is an advertising partner of Motley Fool Money. Marc Guberti has positions in Apple.
The Motley Fool has positions in and recommends Apple, Best Buy, Canadian Natural Resources, Equinor Asa, JPMorgan Chase, Microsoft, and Nvidia. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy .
Source: The Motley Fool
