Fidelity's 2-Pronged ETF Strategy

April 29, 2019

[This article appears in our May issue of ETF Report.]

 

 

Greg Friedman, head of ETF management and strategy for Fidelity, says the 73-year-old company has a two-pronged strategy when it comes to ETFs: attracting investors to the platform and launching new products.

Because of that, Friedman says he wears two hats when talking about ETFs, delivering what customers want in terms of platform tools, number of ETFs available and other trading needs, plus launching Fidelity-branded ETFs and keeping up with client demands for product innovation.

“The ETF story for Fidelity … is about the client experience as well as a quality product,” he said.

Friedman says Fidelity has about $380 billion in ETF assets on its platform, which he says represents 11% of all U.S. ETFs traded. Fidelity has a strong partnership with BlackRock, and offers iShares ETFs commission-free. The company will also be expanding its commission-free trading list soon, but Friedman declined to say who its new partners will be.

Cheapest Not The Goal
In an atmosphere where there’s a race to who can be the cheapest, whether as an ETF issuer or as a platform, offering a host of commission-free ETFs is one way the firm is competing with the Vanguards and Charles Schwabs of the world, although Friedman says Fidelity’s aim is not to be the cheapest.

But being cheap helps—on the product side, Fidelity just launched its ZERO Total Market Index Fund, a mutual fund, which has $2.5 billion in assets after a February launch.

“Our goal is not to be the cheapest,” Friedman explained. “We want to bring choice, value, innovation; that’s our mission and our value. We want to bring out innovative products that are fairly priced, that perform well and that do right by our customers. That’s how we measure ourselves.”

The idea behind offering commission-free ETFs is to lure users to the platform, as they’re more likely to stay once they’ve opened an account. It’s why Friedman can be brand-agnostic when it comes to getting clients on the platform.

“If they’re on our platform and the customer may want to trade a competitor’s ETFs and happen to have good experience and we’re providing good quality, that’s just as important to me as them buying a Fidelity ETF,” he noted.

Launch Plans
Fidelity is busy launching ETFs. It has a total of 28 U.S. ETFs with total assets under management (AUM) of $13 billion. The ETF with the largest AUM is the Fidelity MSCI Information Technology Index ETF (FTEC), with $2.2 billion.

It has a mix of passive sector and smart-beta equity ETFs, as well as four actively managed fixed-income ETFs. But its focus is on smart beta and active, Friedman says, having rolled out three such funds in February: the Fidelity Small-Mid Factor ETF (FSMD), the Fidelity Targeted International Factor ETF (FDEV) and the Fidelity Targeted Emerging Markets Factor ETF (FDEM). There are also plans to launch active equity ETFs, in addition to the active fixed-income funds.

The push behind the smart-beta and active ETFs is to compete in what Friedman calls “chapter two and chapter three” of the ETF story.

This is Fidelity’s third foray into the ETF universe, having launched the Fidelity NASDAQ Composite Tracking Stock (ONEQ) in 2003, and then 11 passive sector funds in 2013 (see Figure 1).

 

 

Why return now? “I think Fidelity’s place in the ETF industry is obviously much stronger,” Friedman said. “People see us as a leader. They like our insight. They like our brand heritage, they like how we’ve always done the right thing for the client.”

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