When mutual fund giant launched 10 sector exchange traded funds in October 2013, the firm signaled it was not afraid of competing with State Street Global Advisors and Vanguard, the dominant issuers of sector ETFs.
Just over a year later, it is clear there is room for multiple competitors in the sector ETF space because Fidelity’s sector suite has been a success. Buoyed by the exponential growth and use of sector ETFs, its broad advisor network, the lowest fees among sector ETFs and a deep commission-free platform, Fidelity’s sector ETFs have raked in over $2 billion in combined assets. [Popular Commission-Free ETFs on Fidelity]
However, the competition is never-ending and Fidelity’s sector ETFs face competition from an internal source: The company’s lineup of sector mutual funds.
“In the last few years many asset managers have seen the popularity of passive ETFs take assets away from their active mutual funds. However, Fidelity has been able to have their cake and eat it too. The launch of ten sector ETFs, tied to MSCI indices, in October 2012 has been successful, in our opinion. These Fidelity ETFs, which are the cheapest in their respective sector style according to S&P Capital IQ, have a combined $2 billion in assets. Yet, investors have continued to put fresh money into certain Fidelity Select mutual funds in 2014,” said S&P Capital IQ in a new research note.
S&P Capital IQ notes the Fidelity Select Technology Portfolio (FSPTX) is a four star-rated mutual fund, but that ETF charges 0.8% per year, compared to just 0.12% for the passively managed Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC).
FTEC, which S&P Capital IQ rates overweight, has $307 million in assets under management and has risen to acclaim this year to due to its robust weight to old line technology and semiconductor firms. The fund’s 15.4% weight to Apple (NasdaqGS: AAPL) is one of the largest weights to the iPad maker among all ETFs. [New ETFs Merit Consideration]
“Year-to-date through December 19, FTEC has risen 19%, outperforming the 11% gain achieved by FSPTX. Looking back five years, FSPTX has outperformed its Lipper peer group, though more recent performance has been below average. FSPTX is quite active, with a recent turnover rate of 181%, dwarfing the 3% return for the passive FTEC. Nonetheless, assets into FSPTX have climbed 23% in 2014 climbing to $2.7 billion,” said S&P Capital IQ in the note.
Other Fidelity ETFs that have impressed in terms of asset-gathering proficiency include the $199.9 million Fidelity MSCI Consumer Staples Index ETF (NYSEArca: FSTA), the $370.3 million Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) and the $201 million Fidelity MSCI Financials Index ETF (NYSEArca: FNCL).
Fidelity MSCI Information Technology Index ETF
Tom Lydon’s clients own shares of Apple.