According to Fidelity Portfolio Manager Eric Granat, investors seeking options-based income face an artificial trade-off: pursuing higher annual yield or participating in long-term market appreciation – but not both. He notes that this tension has led some strategies, in the race to replace cash yields, to rely on aggressive option selling, often at the expense of growth.
“While these approaches may generate an attractive yield in the short term, they can quietly limit principal growth over time, undermining the very capital investors depend on for long-term capital appreciation,” says Granat, who co-manages Fidelity® Yield Enhanced Equity ETF (FYEE) with Shashi Naik, George Liu and Anna Lester.
Granat explains that the fund was designed with a different objective: responsibly harvesting option premiums without sacrificing total-return potential. Rather than maximizing yield at any cost, the strategy takes a balanced approach, targeting a 6% to 8% yield while seeking to preserve equity upside, he says.
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Granat adds that the strategy targets call options roughly 2% to 4% above current stock prices, allowing the portfolio to generate income while still participating in rising markets. The fund does not, however, synthetically sell stocks through in-the-money calls to manufacture artificially high dividends for shareholders.
This distinction is critical, according to Granat. “We’re intentional about how income is generated,” he says. “Rather than selling call options that offer minimal upside opportunity, we focus on producing income aligned with long-term growth potential.”
The fund’s income comes from a combination of equity dividends and premiums from the sale of out-of-the-money call options – a structural difference he says tends to support greater capital durability over time.
Granat notes that, since inception on April 9, 2024, through April 30, 2026, the fund has delivered strong total performance even without dividend reinvestment, a characteristic he highlights as potentially appealing to investors who rely on portfolio income to support everyday expenses (past performance does not guarantee future results).
For specific fund information, including full holdings, please click on the fund trading symbol above.
Eric Granat is a portfolio manager and derivatives analyst within the Global Institutional Solutions (GIS) group at Fidelity Investments.
In this role, Mr. Granat serves as co-manager of the Fidelity and Fidelity Advisor Hedged Equity Funds. He also serves as portfolio manager for the FIAM US Tail Risk Strategy, as well as other derivatives-based strategies, including the recently launched Fidelity Hedged Equity ETF (FHEQ), Fidelity Dynamic Buffered Equity ETF (FBUF), and Fidelity Yield Enhanced Equity ETF (FYEE). Additionally, he is responsible for the design and implementation of derivatives-based products and provides market analysis and customized derivative solutions to portfolio management teams to enhance portfolio performance and risk attributes.
Prior to re-joining Fidelity and assuming his current responsibilities, Mr. Granat was a portfolio manager and a trader at Rampart Investment Management. Previously, Mr. Granat worked as a principle analyst/programmer at Sun Life Financial. He has been in the financial industry since 1997.
Mr. Granat earned his bachelor of science degree in information systems from Salve Regina University and his master of business administration degree from Babson College. He is also a Chartered Alternative Investment Analyst.