Q: What has been the biggest surprise to you since the ETFs launched?
A: In just over two years, we have raised just over $2.8 billion in assets for our ETFs. They trade extremely well and the spreads have been tight. We have one of the lowest cost families of sector based products with expense ratios of 12 basis points. However, we have grown also our sector mutual fund business to $82 billion over the last four years. So investors have looked to us for both passive and active strategies.
Q: Health care was a popular place to invest in 2015, with your sector ETF and your biotech mutual fund both pulling in strong inflows. Where have the assets flowed in early 2016?
A: There’s no question that health care at the end of 2015 was almost 25% of the sector category for us, including the actively managed funds. One thing we know about sectors is that we tend to see changes in sector leadership. We have certainly seen a shift, particularly in January and February, from more consumer discretionary and health care oriented exposures into more defensive ones such as consumer staples and utilities. In addition, energy has been an interesting space.
Q: You mentioned earlier the more recent addition of a Real Estate ETF. It is being added as its own GICS sector later in 2016. What do you think is the appeal of REITs?
A: While it has not been a GICS sector, REITs have been adopted by investors as separate. We have seen solid demand for our new ETF and we expect interest to continue. REITs are differentiated because they not only offer income but also capital appreciation depending on where we are in the economic cycle.
Q: What’s ahead for Fidelity SelectCo in 2016?
A: This year we are working to educate investors about how to use these types of exposures to augment their well-diversified portfolios. When we look at the $713 billion in sector investing at the end of 2015, 42% of it is in ETFs with the remainder in active and passive mutual funds. Our role is to provide the building blocks for investors and thought leadership about sectors. We work with our asset allocation team to help clients understand where we are in the economic and how sector strategies can fit their needs.
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