Mutual fund giant Fidelity made its first sizable foray into the exchange traded products industry today with the debut of 10 sector ETFs. BlackRock (NYSE: BLK), the largest U.S. asset manager, is the sub-advisor for the Fidelity sector ETFs.
Fidelity and iShares already have a partnership that includes the former offering some iShares ETFs to its clients on a commission-free basis. Earlier this year, the number of iShares ETFs available commission-free to Fidelity clients was more than doubled to 65. [Fidelity, iShares Deepen Ties]
State Street’s (NYSE: STT) State Global Advisors and Vanguard are the two dominant providers of U.S.-focused sector ETFs and Vanguard has challenged its larger ETF rivals by offering some of the lowest fees in the business. With the exception of the Vanguard Financials ETF (NYSEArca: VFH), which has an annual expense ratio of 0.19%, Vanguard’s sector funds charge 0.14% a year. [Vanguard on ETF Fee War]
Popular sector SPDRs such as the Financials Select Sector SPDR (NYSEArca: XLF) and the Consumer Staples Select Sector SPDR (NYSEArca: XLP) charge 0.18% per year. Bottom line: The big news with the launch of Fidelity’s sector ETFs may not be so much that Fidelity has significantly bolstered its ETF presence, but that it is charging less than Vanguard.
The 10 Fidelity sector funds, featured in the chart below, charge 0.12%, per year. All of the ETFs are listed on the New York Stock Exchange.
According to Fidelity’s analysis, while company-specific factors have been the top driver of stock returns in the U.S. equity market over the past 20 years, sector exposure has been the second most influential driver, accounting for roughly 22 percent of U.S. equity market returns, as measured by the Russell 3000 Index, more than style and market cap combined, Fidelity said in a statement.
The largest U.S. sector ETF is XLF with $15.4 billion in assets. XLF along with the technology, health care, energy, industrial and consumer discretionary SPDRS rank among the 50 largest U.S. ETFs.
To accompany the launch of its sector funds, Fidelity launched the Sector Portfolio Builder tool, which allows investors to build and model hypothetical sector-based portfolios, as well as compare the historical performance and risk of those portfolios to benchmark indices.
Fidelity has already filed preliminary registration statements with the U.S. Securities and Exchange Commission (SEC) for five actively managed fixed income ETFs, which are pending approval. Once launched, these new ETFs will be managed by investment professionals in Fidelity’s Fixed Income division in Merrimack, New Hampshire, according to the statement.