Assessing the Attractiveness of Fidelity Sustainable Core Plus Bond ETF (FSBD) in a Rising Rate Environment

The Fidelity Sustainable Core Plus Bond ETF (FSBD) has emerged as a compelling option for income-focused investors navigating a rising interest rate environment. With an expense ratio of 0.36% as of 2025, it offers a cost-efficient structure that aligns with its net expense ratio as outlined in its prospectus [3]. This low-cost framework is critical in an era where rising rates amplify the importance of minimizing drag on returns. However, the true test of FSBD’s attractiveness lies in its ability to maintain dividend consistency amid macroeconomic headwinds.

Historical data from 2022 to 2025 reveals a nuanced picture. During this period of aggressive Federal Reserve rate hikes—driven by post-pandemic inflation and geopolitical tensions—FSBD’s dividend per share surged by 66.3%, from $0.101 in January 2025 to $0.169 in August 2025 [3]. This growth outpaced the fund’s three-year average dividend growth rate of 6.22% [3], suggesting resilience in its income generation strategy. The fund’s trailing dividend yield of 4.37% as of August 2025 [5] further underscores its appeal, particularly in a market where traditional fixed-income instruments face valuation pressures due to inverted bond price-yield dynamics [1].

The Federal Reserve’s April 2025 Financial Stability Report highlights broader challenges for the banking sector, including fair value losses on fixed-rate assets and concentrated exposures to commercial real estate (CRE) loans [5]. These risks are particularly relevant for bond ETFs like FSBD, which hold a mix of domestic and foreign bonds with an ESG focus [4]. Yet, FSBD’s ability to boost dividends during rising rate periods indicates a strategic emphasis on high-yield corporate bonds, preferred stocks, and mortgage-backed securities in resilient sectors such as energy and finance [2]. This approach appears to mitigate the typical volatility associated with rate-sensitive bond portfolios.

Critically, FSBD’s dividend consistency is not without caveats. The fund’s annualized distribution yield of 6.8% (based on net asset value) [2] reflects its exposure to high-yield securities, which carry elevated credit risk. Additionally, 78% of its latest distribution was classified as a return of capital [2], a factor investors must weigh against tax implications. Nevertheless, the fund’s monthly payout structure and its demonstrated ability to adjust distributions in response to macroeconomic shifts—such as the 2025 volatility triggered by tariff announcements and geopolitical tensions [4]—position it as a flexible income source.

In a rising rate environment, the interplay between dividend consistency and cost efficiency becomes paramount. FSBD’s 0.36% expense ratio [3] ensures that a significant portion of its income is retained for distribution, while its dividend growth trajectory during 2022–2025 [3] suggests a capacity to adapt to shifting yield curves. However, investors must remain vigilant about the fund’s reliance on high-yield assets and its exposure to sectors vulnerable to rate-driven repricing.

Source:
[1] Bond Markets Reach a Turning Point, [https://www.schwab.com/learn/story/bond-markets-reach-turning-point]
[2] Fidelity Sustainable Core Plus Bond ETF Boosts Distribution, Yield, [https://www.ainvest.com/news/fidelity-sustainable-core-bond-etf-boosts-distribution-yield-seeking-opportunities-2505/]
[3] Fidelity Sustainable Core Plus Bond Etf ETF Dividends, [https://stockinvest.us/dividends/FSBD]
[4] Financial Market Volatility in the Spring of 2025, [https://www.stlouisfed.org/on-the-economy/2025/jun/financial-market-volatility-spring-2025]
[5] Fidelity Sustainable Core Plus Bond Etf ETF Dividends Overview, [https://stockinvest.us/dividends/FSBD]