Fidelity Targets ETFs
Asset manager ponders how to differentiate in a crowded space.
Fidelity International is looking to launch more exchange-traded funds in the second half of this year after introducing its first European ETFs this month, and may eventually consider non-equity products.
Nick King, head of ETFs at Fidelity International, told Markets Market: “We are building the ETF business incrementally and in five years time hope to make a meaningful contribution to assets and revenues.”
King joined Fidelity International from BlackRock in the middle of 2015 to launch an ETF business, following many other US ETF issuers who have entered the European market due to its strong growth rate.
Last week Fidelity International listed its first ETFs in Europe and the first smart beta ETFs the firm has listed globally. Smart beta ETFs do not track a standard market cap-weighted index but instead follow indexes based on factors, such as momentum, quality, size, and value.
Two smart beta ETFs designed to meet investor demand for income, Fidelity Global Quality Income Ucits ETF and Fidelity US Quality Income Ucits ETF, began trading on 3 April on the London Stock Exchange and Deutsche Börse.
King said: “We thought carefully about how to enter the ETF space and differentiate our product offering. Smart beta is a small part of European market but is growing rapidly.”
At the end of January assets invested in smart beta equity ETFs/ETPs globally reached a record $534bn according to consultancy and research provider ETFGI with $476.8bn in the US and $36.8bn in Europe. ETFGI said smart beta equity ETFs have had a five-year compound annual growth rate of 30.6%.
King continued that the Fidelity International smart beta ETFs track Fidelity indices, which differ from others in the market by combining the firm’s active investment, portfolio construction and risk management expertise.
“Existing indices overweight certain sectors such as utilities due to manner in which they are constructed,” said King. “We control sector bias so that returns are driven by quality income rather than relative sector exposure.”
He added that Fidelity International is open to collaborating with third-party index providers if they provided interesting exposures for clients.
“We will launch more ETFs this year, probably in the second half,” added King. “The first few ETFs will be equity focused but we have aspirations for other asset classes.”
BlackRock’s latest Global ETP Landscape report said last month marked a trifecta of records – monthly flows, quarterly flows and year-to-date pace. The report said industry annualized organic growth accelerated in March to 22% versus 13% for full-year 2016.
“2017 first quarter flows surpassed the previous quarterly flow record of $137.8bn from 2014 fourth quarter and dwarfed the previous first quarter record from 2015 of $96.7bn,” added BlackRock. “Year-to-date 2017 flows are more than two and a half times larger than year-to-date 2016 flows.”
Nicholas Colas, chief market strategist at Convergex, a global brokerage company based in New York, said in a note that the 2,000th ETF will list on a US exchange this week.
“It is no exaggeration to say that there are more ETFs than investable stocks listed on US exchanges,” he added. “There aren’t 2,000 stocks in the three most widely followed S&P indices (1,500 there). And there aren’t even 2,000 stocks in the Russell 2000 (which has 1,954 positions currently).”
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