Fidelity, the Massachusetts-based mutual fund giant advisors and investors have long associated with active management, makes its long-awaited foray into actively managed exchange traded funds today with the launch of three new ETFs.
Many new ETFs are often afflicted with cases of bad timing, but that does not appear to be the case with any of Fidelity’s new ETFs. All three ideas look to be well-timed, if only by coincidence in the case of the Fidelity Total Bond ETF (NYSEArca: FBND).
The Fidelity Total Bond ETF is bound to draw comparisons to the PIMCO Total Return ETF (NYSEArca: BOND), the ETF formerly managed by Bill Gross. Like BOND, FBND is the ETF version of a successful (and large) mutual fund.
With so much talk about assets departing BOND for rival ETFs, such as the passively managed iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) and the Vanguard Total Bond Market ETF (NYSEArca: BND), critics could assert that FBND’s launch date is intentional. However, the reality is Fidelity commenced analysis of a possible entry into the active ETF market in 2012 and filed plans with the Securities and Exchange Commission for the three ETFs launched today in the first and third quarters of 2013. It can take 12 to 18 months for active ETFs to clear SEC hurdles and go live. [Leaving One Bond ETF for Another]
FBND’s mutual fund counterpart is one of just four comparable mutual funds to carry the prestigious Morningstar gold rating. FBND and the Fidelity Limited Term Bond ETF (NYSEArca: FLTB) and Fidelity Corporate Bond ETF (NYSEArca: FCOR), the firm’s other new additions today, will each be managed by the same management teams from the equivalent mutual funds.
With investors flocking to low duration bond ETFs this year in anticipation of a 2015 interest rate hike by the Federal Reserve, the Fidelity Limited Term Bond ETF looks like another well-time idea from idea. Both FLTB and the Fidelity Corporate Bond ETF are the first actively managed ETFs of their kind. The mutual fund equivalent of the Fidelity Limited Term Bond ETF has a duration of just 2.73 years, according to issuer data.
Fidelity, long associated with equities, has $860 billion in fixed income assets under management, indicating today’s new product introductions will not be the last on the actively managed fixed income front from Fidelity.
Bob Brown, president of Fidelity’s Bond division confirmed as much in an interview with ETF Trends, saying that Fidelity is in the ETF business “for the long haul” and that company aspires to a leadership role in the ETF arena.
Fidelity’s move into actively managed ETFs comes almost exactly a year after the firm rolled out 10 passively managed sector ETFs. Introduced in October 2013, Fidelity’s sector ETFs needed until only June 2014 to amass a combined $1 billion in assets under management. [Fidelity ETFs Quick to $1B in AUM]
Those funds now have a combined $1.4 billion led by popular offerings such as the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC), the Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) and the Fidelity MSCI Financials Index ETF (NYSEArca: FNCL)
By comparison to some other actively managed ETFs, Fidelity’s new offerings represent value propositions, particularly the Fidelity Corporate Bond ETF. Brown notes the first actively managed investment-grade corporate bond ETF gives investors exposure to Fidelity’s team of over 400 combined equity and fixed income analysts which is “incredible value to get that level of market intelligence for just 45 basis points,” he said.
All three of Fidelity’s new ETFs charge just 0.45% per year, low by the standards of actively managed ETFs, and each is available commission-free to Fidelity clients. Fidelity now offers 84 ETFs on its commission-free platform.
“Of the $17 billion in total actively managed ETF assets, fixed income represents 76 percent and has grown at an average annual rate of 158 percent since January 2010,” said Fidelity in a statement.