Fidelity to Join Mutual Fund-to-ETF Club With $430 Million Flip

(Bloomberg) — Fidelity Investments, one of the country’s largest asset managers, is making its first foray into converting some of its mutual funds into ETFs.

Most Read from Bloomberg

The Boston-based firm on Wednesday revealed plans to convert six of its thematic mutual funds into actively-managed exchange-traded funds. Fidelity expects to complete the conversion in June 2023.

The conversion would bring its active equity ETF lineup to 15 funds from an existing nine. The current funds had about $720 million in assets under management as of Oct. 31, while the assets of the six thematic mutual funds total roughly $430 million, according to emailed comments from a Fidelity spokesperson.

In the coming decade, more than $1 trillion worth of mutual fund assets could be converted into ETFs, according to an analysis by Bloomberg Intelligence. That would represent a huge boost to the $6.5 trillion US ETF market.

The new ETFs will each have an expense ratio of 0.50%, which is roughly the industry average. Ahead of the conversion, the mutual funds’ expense ratio will be slashed to 0.50% from 1% on or about April 1, 2023.

“Fido has little to lose with this conversion,” Bloomberg Intelligence’s Henry Jim said, referring to Fidelity. “They are giving up half the fees on a relatively small asset base and in return they are getting a suite of thematic ETFs that are cheaper to run and easier to sell to a broader client base,”

The trend of mutual fund conversion gained traction last year after Dimensional Fund Advisors completed one of the first formal attempts in June 2021. In June, JPMorgan completed a conversion of four mutual funds including the $1.3 billion JPMorgan Inflation Managed Bond Fund. In October, Neuberger Berman converted its only US commodity mutual fund into an ETF.

Tax efficiency is frequently cited as a reason to make the switch. “A growing number of investors are seeking the tax efficiency, trading flexibility and potential cost efficiency benefits of ETF vehicles,” Greg Friedman, Fidelity’s head of ETF management and strategy, said in a statement.

All converted ETFs will be led by the the same portfolio managers as the mutual funds, the firm said in statement. Fidelity manages a total of 51 ETFs with a collective $28 billion in assets.

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.

Source link






Leave a Reply

Your email address will not be published. Required fields are marked *