Fidelity Active ETFs Would Gain Market Share: S&P

August 10th at 8:04am by Tom Lydon

Last week, exchange traded fund industry observers speculated on Fidelity Investments’ plans to convert its popular sector mutual funds into actively managed ETF options. With capable managers at the helm, the active ETF options may be viable contenders, according to S&P analysts.

“Fidelity has a strong presence with its sector- and industry-focused mutual funds,” Todd Rosenbluth, S&P Capital IQ ETF Analyst, said in a research note. “If it were to enter the ETF landscape, we think there is some room for market share gain, but expense ratios might be a big driver of how successful it could be.”

Bloomberg previously reported that Fidelity is planning active ETFs based on the company’s sector funds. It is assumed that Anthony Rochte, who was hired from State Street in March, would oversee the ETF unit. [Fidelity Reportedly Preparing Active ETFs]

Of the 22 Fidelity Select funds with an established manager who has overseen his or her respective funds for over three years, 14 of the funds have an above average track record. Nevertheless, it should be noted that past performances are not indicative of future gains.

When comparing ETFs and mutual funds, most investors will go over the fees. Since ETFs passively track an index, the costs are substantially lower, but actively managed ETFs may issue higher fees.

Fidelity Select portfolios come with an average expense of 0.88%, ranging between 0.80% and 1.01%.

“We also believe that if Fidelity were to roll out ETFs, the expense ratios would be lower than the mutual fund offerings, in an attempt to garner assets and benefit from the parent company’s scale,” Rosenbluth added, estimating Fidelity potential offerings with fees comparable to PIMCO‘s Total Return Bond ETF (NYSEArca: BOND) of 0.59% to the 0.85% of the retail mutual fund.

A few comparison between Fidelity Select sector funds and sector ETF options include:

  • Biotechs. Fidelity Select Biotechnology (FBIOX) has a 0.83% expense ratio and is up 10.9% over the past five years. In contrast, the SPDR S&P Biotech (NYSEArca: XBI) has a 0.35% expense ratio and gained 9.7% over the past five years.
  • Health Care. Fidelity Select Health Care Portfolio (FSPHX) has a 0.80% expense ratio and rose 6.0% over the last five years. The Health Care Select Sector (NYSEArca: XLV) has a 0.18% expense ratio and increased 4.1% over the same period.
  • Tech. Fidelity Select Technology Portfolio (FSTPX) has a 0.81% expense ratio and is up 4.8% over the last five years. The Vanguard Informationi Technology ETF (NYSEArca: VGT) has a 0.19% expense ratio and gained 4.8% over the last five years.

For more information on sector funds, visit our sector ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.