The Nasdaq has scored a coup with its first licensee for its Composite Index. The exchange has struck a deal with fund giant Fidelity Investments to offer both an exchange-traded mutual fund and an open-ended, indexed mutual fund. The new ETF will be Fidelity's first. Word of the new product came when Fidelity filed paperwork for the funds with the SEC yesterday.

The Nasdaq already offers an ETF for its Nasdaq-100 index and earlier this month Powershares launched an index based on a subset of Nasdaq listed stocks. Fidelity plans to open trading on its Nasdaq Composite Index Tracking Stock in August.

While Fidelity will be offering the only fund products tied to the Nasdaq Composite Index, it is not clear how much demand there will be for it. The Nasdaq index peaked at more than 5000 in the spring of 2000 now stands at just more than 1500. The exchange has also pulled plans to conduct its own IPO as the ardor for technology stocks has cooled.

Not only is the index well off from its highs, it is also not widely used as a proxy for the stock market. Many investors use the Nasdaq as a proxy for technology stocks. However, there are more specialized indices that track that sector's performance more closely. Sophisticated investment advisors may need to be convinced of the need for this index in their client's portfolios. ETFs are popular with many advisors.

Fidelity does have the distribution might to build awareness of the product, though. It is also large enough to carry the new funds if they are slow to find an audience. That is a capability that may be key to the funds' success. Earlier this year ETF Advisors pulled the plug on a family of planned fixed-income ETFs when it discovered that it lacked the financial heft to market the funds against giants such as Barclays.

Fidelity will initially subsidize some of the fund's expenses in order to keep the total expense ratio to 30 basis points, according to the SEC filing. Long run, the fund will pay Fidelity a 24 basis point fee for investment management and it will pay the Nasdaq another 6 basis points as a licensing fee. The fund also carries a 12b-1 marketing fee of 9 basis points and 19 basis points in other expenses.

The open-ended version of the Nasdaq Composite index fund will carry an expense ratio of 45 basis points and a minimum initial investment of $10,000.  

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