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The ETF share class movement received a big boost on Monday when Fidelity announced plans to imminently enter the fray.
Not only does that mean another highly recognizable asset manager and one long trusted by advisors is in the game, but the non-Vanguard population of ETF share classes of established mutual funds also got a nice bump because Fidelity is introducing ETF share classes on a trio of its mutual funds.
Fidelity’s foray into this realm is noteworthy for other reasons. As advisors know, the concept of ETF share classes of index or mutual funds was dominated by Vanguard for more than two decades because that issuer had patent protection on the methodology for over 20 years, but that privilege expired in 2023.
Dimensional, which is planning at least a dozen more ETF share classes, cracked the door open earlier this year with the debut of the DFA US Micro Cap ETF (NYSE: DFMC). Now, Fidelity is ratcheting up the proposition.
Here Are the Deets on Fidelity’s ETF Share Classes
The three Fidelity ETF share classes will commence trading on the Nasdaq on Friday, June 18. Those funds are as follows: Fidelity® Intermediate Municipal Income ETF (FIMU), Fidelity® Real Estate Income ETF (FREI), and Fidelity® Short-Term Bond ETF (FSTB).
“Fidelity Intermediate Municipal Income normally invests at least 80% of its assets in municipal securities whose interest is exempt from federal income tax,” according to a statement issued by the Boston-based asset manager. “The strategy is managed by co-portfolio managers Cormac Cullen, Michael Maka, and Elizah McLaughlin who have a combined 26 years of experience.”
That ETF will charge 0.30% per year. FREI, the real estate income ETF, is managed by Bill Maclay who has nearly three decades of experience. That fund will usually direct 80% of its assets to real estate-related debt and other income-generating securities tied to that sector. FREI’s annual expense ratio is 0.57%.
At a time when short duration bond funds are back in style, FTSB, which charges 0.20% annually, could rapidly gain traction among advisors.
“Fidelity Short-Term Bond normally invests at least 80% of its assets in investment-grade debt securities of all types and repurchase agreements for those securities. The strategy is managed by co-portfolio managers Dave DeBiase, Robert Galusza, and John Mistovich who have a combined 89 years of experience,” adds the issuer.
Holders of the three related mutual funds have the option to convert those positions to the ETF share classes.
ETF Share Class Trickle
There’s been talk of an ETF share class tidal wave, but to date, it’s really been a trickle, but that’s a positive because it indicates the industry and regulators expressing pragmatism.
Specific to Fidelity, the fund giant didn’t say if it’s planning more ETF shares, but it has over 300 mutual funds, confirming it has an ample from which to consider ETF share class additions. It’s likely just a matter of time before more issuers follow DFA and Fidelity into the arena.
ETF share classes may well find an audience among mutual fund investors because due to the in-kind creation and redemption process, ETFs of all stripes offer tax benefits not accessible to mutual funds. For issuers, there’s the added perk of bringing ETFs to market that are related to mutual funds with which advisors and investors are familiar.
Related: Vanguard Just Passed iShares: How the ETF Giant Won by Keeping It Simple