Fidelity joins ETF rush with launch of two products
New exchange traded funds will invest in companies that pay attractive dividends
Fidelity International will become the latest investment manager to try to break into the rapidly growing exchange traded funds industry with the launch of two income-focused ETFs today.
Fidelity already offers a range of 14 index-tracking mutual funds but the launch this week marks the ETF debut of the £224bn UK asset manager.
The two new ETFs have been designed as “quality income” funds that will invest in US and global companies with stable earnings and cash flows that also pay attractive dividends. Both ETFs will track proprietary Fidelity-branded indices instead of benchmarks created by established index providers such as S&P Dow Jones Indices or MSCI.
Nick King, head of ETFs, said this approach would allow Fidelity to use its active investment expertise to offer “something innovative” to investors looking for an income stream.
Mr King said Fidelity also planned to launch more “smart-beta” ETFs over the next 18 months, as it believed there was “significant scope” for growth for strategies that combine active and passive investment management techniques.
“Demand for smart-beta strategies such as quality income has been growing in recent years and is expected to accelerate as investors look for competitively priced products that provide a particular investment outcome,” said Mr King, who was hired from BlackRock in 2015 to build an ETF team for Fidelity.
Investors globally ploughed a record $57bn in new cash into smart-beta ETFs in 2016, according to ETFGI, a London based consultancy. Record investor inflows have led to a rush by asset managers to offer products. Around 230 smart-beta ETFs were launched last year, leading to downward pressure on fees.
Inigo Fraser-Jenkins, a strategist at Bernstein Research, the brokerage, said that smart beta had become one of the most popular investment searches on Investopedia and Google, the websites.
“The reason why smart-beta ETFs are growing in popularity so fast is not because they are revolutionary in some way but because they are cheap,” said Mr Fraser-Jenkins.
He added that the cheapest smart-beta ETFs were attracting the highest inflows and that fees would continue to decline in 2017.
The Fidelity US Quality Income ETF will carry an annual fund charge of 30 basis points, while the Global Quality Income ETF has been priced at 40bp. Both funds will start trading on the London Stock Exchange and Deutsche Börse today.