Mutual fund and retirement plan giant Fidelity made waves in the exchange traded funds industry in October when it rolled out 10 sector funds.
While many industry observers believe Fidelity is late to the ETF party, there is reason to believe the firm’s ETF expansion was well-timed. For example, investors have been embracing sector ETFs in a big way this year, having poured $33 billion into such funds and $3 billion in November alone, according to S&P Capital IQ. [Major Sector ETF Comparison]
“S&P Capital IQ believes sector ETFs will continue to collectively gather assets in 2014, which makes the recent entry by Fidelity into this market with low-cost offerings all the more interesting,” the research firm said in a new note.
While Fidelity’s sector ETF foray can be seen as challenge to its Boston neighbor, State Street’s (STT) State Street Global Advisors, Fidelity’s decision to charge just 0.12% per year on all 10 of its sector funds and offer those ETFs to its clients commission-free could be interpreted as more of a shot across the bow against Vanguard than any other issuer. [Fidelity's New ETFs Put Vanguard on Notice]
Vanguard’s sector ETFs, with the exception of the Vanguard Financials ETF (VFH) , all charge 0.14% per year, which is below the 0.18% State Street charges on each of its nine sector SPDR ETFs. Still, low fees are not the only key to attracting sector ETF assets. The nine SPDRs are by far the largest sector ETFs in the U.S. and State Street has seen compound annual growth of 30% for those funds over the past three years.[SPDRs Still Flourish Amid Rising Competition]
“Fidelity has seen the strongest asset flows into Fidelity MSCI Health Care Index ETF (FHLC) and Fidelity MSCI Information Technology Index ETF (FTEC) ,” said S&P Capital IQ, which rates both of those funds overweight.
FHLC and FTEC have $23.8 million and $23.4 million in assets under management, respectively. S&P Capital IQ also has an overweight rating on the Fidelity MSCI Consumer Staples Index ETF (FSTA) ,which as the research firm notes, has a larger allocation to the soft drink sub-industry than does the rival Consumer Staples Select Sector SPDR (NYSEArca: XLP) . FSTA has $20.8 million in AUM, according to Fidelity data.
S&P Capital also rates the Fidelity MSCI Energy Index ETF (FENY) , Fidelity MSCI Industrials Index ETF (FIDU) and the Fidelity MSCI Financials Index ETF (FNCL) overweight. Combined, those three ETFs have $65.6 million in AUM, according to issuer data.
Fidelity MSCI Health Care Index ETF