FDHY: A High-Yield ETF That Thrives in Rising Rate Environments

When evaluating FDHY as a monthly income generator in a rising rate environment, the key question is: Can high-yield ETFs like FDHY maintain dividend consistency and yield stability when the Fed tightens monetary policy? The answer, based on recent performance and indirect evidence, leans toward “yes”—but with caveats.

FDHY, the Fidelity Enhanced High Yield ETF, has consistently delivered a robust dividend yield, averaging 6.5–7.15% over the past year [1]. Its monthly payouts, such as the $0.272 distribution in August 2025, reflect an active management strategy focused on undervalued credits and sector diversification [2]. This approach has helped FDHY outperform passive peers like HYG and JNK, even as interest rates climbed in 2022–2023 [3]. During that period, FDHY’s yield remained resilient, dropping only slightly to 6.0% in 2024 before rebounding to 6.55% in 2025 [4].

The 2015–2018 rate hike cycle offers a less direct but instructive comparison. While FDHY itself was launched in 2018, its structure mirrors other high-yield ETFs that navigated that period. For example, the Xtrackers USD High Yield Corporate Bond ETF (HYLB) maintained a 5.79% yield and consistent monthly dividends despite rising rates [5]. FDHY’s active management and diversified portfolio of 300+ bonds suggest it could replicate this resilience, though its shorter track record means we must rely on broader market dynamics.

Critically, FDHY’s 0.35% expense ratio [3] and focus on high-yield bonds (BB or lower-rated) position it to capitalize on income generation. High-yield bonds, while riskier, often outperform in rate-cut environments and provide a buffer against price volatility during hikes [6]. However, investors must balance this with the inherent risks: rising rates can pressure bond prices, and defaults in the high-yield space are more likely during economic downturns [7].

FDHY’s recent performance during the 2022–2023 hikes—where it returned 7.4% annually and maintained a 6.64% yield [8]—demonstrates its ability to adapt. Yet, the Fed’s aggressive 2022–2023 tightening cycle (seven 25-basis-point hikes) was more severe than the gradual 2015–2018 cycle [9]. FDHY’s active management likely mitigated some of the volatility, but the fund’s sensitivity to interest rates remains a concern.

For income-focused investors, FDHY’s appeal lies in its combination of yield, cost efficiency, and active risk management. However, it’s not a “set it and forget it” play. Monitor macroeconomic signals—like inflation trends and Fed policy—and consider pairing FDHY with investment-grade bonds to hedge against rate-driven volatility [10].

In conclusion, FDHY is a compelling option for those seeking monthly income in a rising rate environment, but it demands a nuanced approach. The fund’s yield stability and active strategy make it a standout, but its risks—like all high-yield ETFs—cannot be ignored.

Source:
[1] FDHY - Fidelity High Yield Factor Etf ETF Dividends [https://stockinvest.us/dividends/FDHY]
[2] FDHY: A Cost-Effective High-Yield ETF Thriving in a Rate-..., [https://www.ainvest.com/news/fdhy-cost-effective-high-yield-etf-thriving-rate-cut-environment-2507/]
[3] FDHY - Fidelity Institutional [https://institutional.fidelity.com/app/literature/view?itemCode=9891509&renditionType=pdf]
[4] FDHY Dividend Information Fidelity High Yield Factor ETF [https://marketchameleon.com/Overview/FDHY/Dividends/]
[5] The Case for High Yield Bonds in a Rising Rate Environment [https://www.ainvest.com/news/case-high-yield-bonds-rising-rate-environment-2508/]
[6] FDHY: 7.5% Yield, Monthly Dividend From Outperforming Corporate Bond ETF [https://seekingalpha.com/article/4653881-fdhy-7-5-percent-yield-monthly-dividend-from-an-outperforming-corporate-bond-etf]
[7] High-Yield ETFs in Cooling Market: Proceed With Caution [https://www.etf.com/sections/advisor-center/high-yield-dividend-etfs-market-risk-2025]
[8] Fidelity Enhanced High Yield ETF (FDHY) Performance History [https://finance.yahoo.com/quote/FDHY/performance/]
[9] Federal Funds Rate History 1990 to 2025 [https://www.forbes.com/advisor/investing/fed-funds-rate-history/]
[10] The Attractive Income Potential of Fidelity Total Bond ETF ..., [https://www.ainvest.com/news/attractive-income-potential-fidelity-total-bond-etf-rising-rate-environment-2508/]