Fidelity’s two largest ETFs are index-based. However, that might be short-lived as the firm increases its commitment to ETF industry through active products. Given Fidelity’s prominence in active management through mutual funds, the firm is one to watch.
The Fidelity MSCI Information Technology ETF (FTEC ) and the Fidelity Nasdaq Composite Index ETF (ONEQ ) manage approximately $7 billion and $5 billion, respectively. While growth equity ETFs FTEC and ONEQ have gathered money in the first half of 2023, the firm’s most popular ETF this year has been an active fixed income fund. The Fidelity Total Bond ETF (FBND ) gathered $1.5 billion of net inflows to push its asset base past $4 billion. Meanwhile, Fidelity has recently expanded and plans to further expand its lineup of active equity ETFs in the coming months.
Fidelity’s Active Bond ETF Is Outperforming
FBND launched in 2014 and has generated an impressive record. The active ETF outperformed its Morningstar peers in six of the eight full calendar years and was leading the peer average year-to-date. Relative to the iShares Core Aggregate Bond ETF (AGG ), FBND was strong on both a one- and three-year total return basis. Unlike the AGG, FBND can invest modestly in non-U.S. bonds and high yield corporate bonds, and management can have discretion within more traditional bond sectors.
In 2020, Fidelity expanded its offerings to include semi-transparent actively managed equity ETFs. These included some well-known strategies like the Fidelity Blue Chip Growth ETF (FBCG ) and the Fidelity Magellan ETF (FMAG ).
“We are generally happy with the semi-transparent products we launched,” explained Greg Friedman, Fidelity’s head of ETF management and strategy, in an exclusive interview. “There is brand recognition, and the funds have tight spreads. But there are limitations to what they can own, such as non-U.S.-listed stocks.”
Thematic ETFs Are Focused Globally
Fidelity also converted a suite of thematic equity ETFs in June 2023, including the Fidelity Disruptive Technology ETF (FDTX ). FDTX owns U.S.-listed stocks like Adobe, Microsoft, NVIDIA, and Workday, as well as international stocks like ASML, Advantest, and Taiwan Semiconductor. The fully transparent ETFs can find the best stocks, regardless of where the companies are domiciled.
“We are committed to being a leader in active management and plan to bring the best of Fidelity into the ETF market. We are at an inflection point with a shift from active mutual funds to active ETFs and distributors embracing ETFs. Our active ETF lineup will continue to expand,” added Friedman.
More Active ETFs From Fidelity Are Coming Soon
Indeed, after we spoke with Friedman, Fidelity filed to convert six additional actively managed mutual funds into ETFs. The funds recently managed $13 billion in assets. The suite includes the $5.2 billion Fidelity Large Cap Value Enhanced Index Fund FLVEX and the $1.6 billion Fidelity International Enhanced Index Fund FIENX. These funds will provide Fidelity with proprietary core equity strategies for advisors and retail investors to use to build portfolios. ETFs like FTEC and FDTX can complement such funds.
The firm also has a strong index-based smart beta lineup that is under the radar. Funds like the Fidelity Low Volatility Factor ETF (FDLO ) track proprietary sector-neutral indexes. Such an approach has helped FDLO to outperform the iShares MSCI USA Min Vol Factor ETF (USMV ), which has been underweight to information technology in 2023.
At VettaFi, we are excited for Fidelity to further embrace active ETFs. Given their strong brand, broad distribution, and deep expertise in selecting stocks and bonds, we believe asset growth will continue.
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