The largest mutual fund companies are feeling the competitive pinch from the rise of low-cost exchange traded funds, putting more pressure on the firms to jump on the ETF bandwagon.

For example, Fidelity Investments recently reported “massive outflows” from its stock mutual funds in 2011 although operating profit improved due to expense management, according to Reuters.

“Fidelity, known for its active investment management philosophy, is losing market share to passive strategies. Exchange traded funds … are the most glaring hole in Fidelity’s product line-up for investors,” Reuters reported.

In its annual report, Fidelity said “index and exchange traded funds continued to capture market share from actively managed funds, while extremely low interest rates led to outflows from money market funds,” according to the article.

Fidelity is seen introducing more ETFs in coming months. It currently manages one ETF: Fidelity Nasdaq Composite Index (NYSEArca: ONEQ).

Fidelity has rehired State Street’s Anthony Rochte to head up a new division dedicated to specialized sector investments. [Fidelity Hires State Street ETF Exec Rochte]

The move his led to speculation Fidelity may soon roll out ETF versions of its popular sector mutual funds, Investment News reports.

Bond giant PIMCO recently introduced an ETF clone of Total Return Fund, the world’s largest mutual fund, managed by Bill Gross. [PIMCO Total Return ETF]

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