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Fidelity Sector ETFs Could Impact ETF Landscape


Fidelity, the financial services firm most known for its actively managed mutual funds and dominating presence in the 401(k) arena, launched 10 sector exchange traded funds on Thursday. Although Fidelity previously sponsored one ETF, Thursday’s launches mark the firm’s first deep foray into ETFs.

While the Fidelity sector funds do not differ dramatically from rival products offered by State Street Global Advisors and Vanguard, at least part of the big news is fees. As in Fidelity’s 10 sector ETFs each charge 0.12% per year, lower than the 0.14% charged by most of the Vanguard sector funds. [Fidelity Sector ETFs Could Challenge Vanguard]

Some market observers see the potential for Fidelity to make a splash in the ETF business.

“While a new entrant into the crowded but growing ETF market hardly warrants headlines, we think Fidelity’s strong asset management and self-directed portal brand will contribute to these ETFs impacting the financial services landscape in a number of ways,” said S&P Capital IQ in a new research note.

While Fidelity faces plenty of competition for investors’ assets allocated to sector ETFs, these funds have been increasingly popular with investors. Additionally, Fidelity has long-standing asset-gathering success with its actively managed sector mutual funds.

U.S. sector exchange traded products have been extremely popular thus far in 2013, with $26.6 billion of fresh money going to these offerings in the first nine months, said S&P Capital IQ, citing BlackRock data.

“In addition to smaller expense ratios, we think Fidelity has an advantage over other ETF providers withtheir sector products, as they have also added sector-based education for investors on their self-directed and advisor sites that taps into the analytical expertise of Fidelity’s asset management arm, which offers 44 sector and industry specific mutual funds, along with third-party research,” said the research firm.

S&P Capital IQ did not issue ratings on the new Fidelity ETFs, but the firm has marketweight ratings on the iShares U.S. Consumer Services ETF (IYC) and the Vanguard Consumer Discretionary ETF (VCR).

“While expense ratios are important for investors to consider, we still think State Street’s Consumer Discretionary Sector SPDR (XLY) will remain the industry leader in assets for years to come as it offers significant liquidity and typically trades at an extremely low bid/ask spread of $0.01, compared to similar sector products. Time will tell if Fidelity can match that,” said S&P Capital IQ.

The research firm has an overweight rating on XLY.

Full list of Fidelity sector ETFs

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.