For years, mutual fund giant Fidelity was a non-factor in the expansion of the exchange traded funds industry.
While rivals such as BlackRock (NYSE: BLK), Vanguard and its Boston neighbor State Street (NYSE: STT) each amassed hundreds of billions in ETF assets under management, Fidelity stuck with just one ETF: The Fidelity NASDAQ Composite Index Tracking Stock ETF.
That changed last October when Fidelity rolled out 10 sector ETFs. The success of those sector funds has helped Fidelity quickly gain $1.2 billion in new ETF assets. [Fidelity ETFs Quik to $1B in AUM]
“Fidelity’s foray into the ETF world wasn’t capricious; its index-based sector ETFs are an outgrowth of the actively managed sector funds it’s been running for more than 30 years,” reports Lewis Braham for Barron’s.
As Barron’s notes, Fidelity has been a force for years when it comes to sector mutual funds. “Fidelity’s 39 “Select” sector funds experienced $7.1 billion in inflows in the last five years,” Barron’s reported citing Morningstar data.
While Fidelity’s sector ETFs, a group including the Fidelity MSCI Energy Index ETF (NYSEArca: FENY) and the Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC), entered an arena dominated by State Street and Vanguard, Fidelity ensured it would have some competitive advantages.
For example, Fidelity’s 10 sector ETFs undercut Vanguard on price (0.12% per year compared to 0.14% on most Vanguard sector funds) and are available to Fidelity clients on a commission-free basis. [Fidelity Pushes Vanguard on Sector ETFs]
At the end of the second quarter, five of the Fidelity ETFs had over $100 million in assets under management with FHLC and the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC) locked in a competitive race to be Fidelity’s largest ETF.
Other factors have helped Fidelity’s sectors funds, including good timing. With more investors becoming tactical and realizing they can bolster returns by using ETFs beyond just broad market funds, sector funds are flourishing. Investors poured almost $38 billion into sector ETFs in the first half of the year. [Sector ETFs Soar in Popularity]
Fidelity’s relationship with MSCI (NYSE: MSCI) has helped both the issuer and the index provider. MSCI’s brand recognition is nearly unrivaled in the ETF index space, giving Fidelity some cache on that front. Additionally, the growth of Fidelity’s ETFs has helped MSCI cement its status as a leading index provider. In the first half of this year, over a third of all ETF inflows went to ETFs tracking MSCI indices, indicating the Fidelity/MSCI partnership has been a win for both parties. [New ETFs Boost MSCI]
Fidelity MSCI Health Care Index ETF
ETF Trends editorial team contributed to this post.