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Rating:Can Fidelity Succeed as a Latecomer?  Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, July 30, 2013

Can Fidelity Succeed as a Latecomer?

Reported by Casey Quinlan

Fidelity's [profile] registration of 10 passively managed sector ETFs sub-advised by BlackRock [profile], has caused a splash. It's representative of a significant change in strategy for Fidelity.

While the partnership with BlackRock does offer advantages, Fidelity is essentially launching a "me too" product lineup, however, in a space that is already filled with some well-established players. The question is, can Fidelity succeed as an also-ran?

In an interview, Nicole Goodnow, spokesperson for Fidelity, outlined to MFWire some of her company's strategic thinking behind the move.

For example, Goodnow had this to say of the partnership.

Partnering with BlackRock for our passive sector ETFs plus the broader passive iShares ETF commission free offer, allows us to focus our efforts and resources on innovating in the actively managed, smart beta and a packed strategies areas of the ETF market--areas that draw on our leadership as an active manager and asset allocator.

Goodnow noted that Fidelity has more than $100 billion in ETF assets under administration and has provided our brokerage customers, both individual investors and advisors, access to hundreds of ETFs for a number of years, including 65 iShares commission-free.

As to how these ETFs would fit into Fidelity's traditionally active-managed framework, she said this:

We also anticipate that our future ETF efforts will complement our existing mutual fund product lineup. Our focus is on making sure we continue to provide out customers with a variety of products to choose from that can help them meet their financial goals, and mutual funds continue to be a core investment vehicle for many investors.

Goodnow also said that the ETF market is evolving, and as it changes it will offer new opportunities for Fidelity.

The first chapter started with the launch of passive ETFs. While passive demand will continue, the next chapter will introduce actively-managed ETFs, smart beta ETFs and packaged strategies, areas where we see tremendous opportunity to innovate and where, given our core strengths as an active mutual fund manager and asset allocator, we can provide leadership and add value on behalf of our customers and shareholders.

Todd Rosenbluth, director research for S&P Capital IQ, said this is a positive change for Fidelity, as money is moving into sector based ETFs and out of mutual funds.

"This is a big change for a company that has gone against the ETF business markets. What they're trying right now is a 'me too' strategy, with lots of sector-based ETFs. But it is indeed a sea change, beginning in a potential launches of ETFs," Rosenbluth said in an interview with MFWire.

ETFs have been big in the industry in part because of their low fees, but Rosenbluth said that it's not clear how Fido's move would affect this battlefront.

"It's not clear what direction they're going in whether they're planning to lead on price or distribution. I'd be surprised if they tried to compete with price, even if they had the scale to do it. It would bring diminishing returns. It's more that they're trying to broaden out their product," Rosenbluth said.

When asked how he thought the recent ETF launches would benefit BlackRock, Rosenbluth said, "In March, when they partnered together, the big benefit was shelf space at Fidelity.com with a commission fee. This is the second ETF [launch] so it's more Fidelity that is benefitting. BlackRock is not leading with sector ETFs so it's not a priority. It won't cannibalize."  

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