Aided by declining Treasury yields and the status of U.S. government debt as the world’s top-performing fixed income asset class, bond exchange traded funds have been prolific asset gatherers this year, hauling in nearly a quarter of all new assets that have flowed into ETFs.
Robust demand for some bond ETFs could be interpreted as a sign that the current environment is conducive to launching new bond ETFs, which mutual fund giant Fidelity did Thursday with the debut of three actively managed fixed income funds.
Fidelity, long associated with equities, has $865 billion in fixed income assets under management, indicating the combination of its heft and superior brand recognition can expedite Fidelity’s rise to credible player in the fixed income ETF space. [Fidelity's Epic Active ETF Launch]
It would appear that three new ETFs from Fidelity, in particular the Fidelity Total Bond ETF (FBND) , have the advantage of good timing, particularly with assets departing the PIMCO Total Return ETF (BOND) and PIMCO mutual funds in the wake of Bill Gross’ recent departure.
Fidelity’s “ETFs come to market as many are considering whether to stay with PIMCO in light of the late September departure of its prominent manager Bill Gross. Indeed, according to etf.com data, the now $2.9 billion BOND has experienced $800 million in outflows in the nearly two weeks since Gross’s exit. Besides having more stable fund management, these Fidelity ETFs will also have expense ratio 10 basis points less than BOND’s 0.55%,” said S&P Capital IQ in a new research note.
Although FBND makes for a natural competitor to BOND and passively managed ETFs such as the iShares Core U.S. Aggregate Bond ETF (AGG) and the Vanguard Total Bond Market ETF (BND) , the timing issue should not be overstated.
Fidelity commenced analysis of a possible entry into the active ETF market in 2012 and filed plans with the Securities and Exchange Commission for the three ETFs launched today in the first and third quarters of 2013. It can take 12 to 18 months for active ETFs to clear SEC hurdles and go live. [Leaving One Bond ETF for Another]
FBND competing with some well-known rivals should not cloud the fact FLTB and FCOR are the first actively managed ETFs in their respective fixed income categories.
“Ram Subramanian, president of Fidelity Brokerage, told S&P Capital IQ that the active ETFs are part of the company’s efforts to give customers additional choices to build ETF portfolios. For example, we think investors who hold AGG, but want to have active management tweak duration in light of expected Fed policies may consider using FLTB,” said S&P Capital IQ.
The research firm typically starts rating ETFs within 90 days of launch, so it does not currently have ratings on the new Fidelity funds. FBND’s mutual fund counterpart is one of just four comparable mutual funds to carry the prestigious Morningstar gold rating.