Fidelity Delivers Big ETF News

If you’re an advisors that custodies with Fidelity and/or one that uses exchange traded funds – chances are you check at least one of those two boxes – you likely know that it took the Boston-fund giant awhile to make its presence felt in the ETF space.

After introducing the Fidelity Nasdaq Composite Index Tracking (ONEQ) in 2004, Fidelity sat mostly silent on the ETF front until 2012. Since then, the fund issuer has introduced an array of ETFs, including pure beta and sector funds, fixed income ETFs, actively managed strategies and a surprising number of thematic funds. Fast-forward to today and Fidelity is the 13th-largest U.S. ETF sponsor and has $37.4 billion in assets under management across its suite of branded ETFs.

Owing to excellent brand recognition and superior distribution capabilities among registered investment advisors, it’s a safe bet that Fidelity’s ETF footprint will grow in material fashion in the years ahead. In the ultra-competitive ETF industry, such growth isn’t assured. Issuers must take steps to facilitate that growth of risk being passed over by rivals.

To its credit, Fidelity has gotten the message. On Monday, the company announced another batch of mutual fund-to-ETF conversions along with a slew of fee cuts on previously existing ETFs.

Inside Fidelity ETF Conversions

Advisors may remember that in June, Fidelity said it would “convert the actively managed Enhanced Index mutual fund suite, which was first launched in 2007, into ETFs.”

Some advisors are likely familiar with those products and they are as follows: Fidelity Enhanced Large Cap Core ETF (FELC), Fidelity Enhanced Large Cap Growth ETF (FELG), Fidelity Enhanced Large Cap Value ETF (FELV), Fidelity Enhanced Mid Cap ETF (FMDE), Fidelity Enhanced Small Cap ETF (FESM) and the Fidelity Enhanced International ETF (FENI).

In ETF form, those funds will not only offer clients superior tax advantages relative to mutual funds, but also attractive fees. The annual expense ratios on those products range from expense ratios ranging from 0.18% to 0.28% -- decent among actively managed products.

“Fidelity is committed to offering investors innovative ETFs to meet their evolving needs, including active, passive, and factor strategies,” said Greg Friedman, Fidelity’s Head of ETF Management and Strategy, in a statement. “We continue to see demand for active ETFs as investors seek the potential for outperformance with the benefits of an ETF wrapper. The addition of these six active equity ETFs can serve as core building blocks for investors to meet this need.”

Speaking of Fee Cuts…

Some advisors may already be aware of this, but it’s worth noting that Fidelity already has some of the cheapest sector ETFs on the market. Actually, Fidelity’s sector ETFs sport lower annual fees than do the comparable funds issued by Vanguard.

So with that in mind, it’s not necessarily surprising that Fidelity cut fees on more than a dozen of its factor ETFs – the entirety of that lineup. Not surprising, but nonetheless good news for advisors and clients. I won’t list them all, but you can view them here.

“Additionally, Fidelity has reduced pricing for all of its equity factor ETFs, which was effective earlier this month. The total expense ratio decreased from 0.29% to 0.15% for nine domestic factor ETFs, from 0.39% to 0.18% for three international factor ETFs, and from 0.45% to 0.25% for one emerging markets factor ETF,” according to the issuer.

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