Fidelity Magellan Strategy Gets ETF Wrapper

Today, Fidelity launched four actively managed ETFs using its in-house structure that allows for delayed disclosures of holdings. Three of the ETFs are based on existing traditional mutual funds, while one is an entirely new strategy. They and their expense ratios are as follows:

• Fidelity Growth Opportunities ETF (FGRO), 0.59%
• Fidelity Magellan ETF (FMAG), 0.59%
• Fidelity Real Estate Investment ETF (FPRO), 0.59%
• Fidelity Small-Mid Cap Opportunities ETF (FSMO), 0.64%

The funds all list on Cboe Global Markets, the parent company of ETF.com.

The Funds

FSMO is the only one of the four new ETFs that represents a brand-new strategy. The rest are very similar to existing mutual fund strategies already offered by Fidelity. In particular, FMAG is a repackaging of a strategy that Fidelity used for what was once the largest mutual fund in the world.

Today, the Fidelity Magellan mutual fund has $22 billion in assets under management, down from the roughly $100 billion it had around the turn of the last century.

Fidelity Head of ETF Management and Strategy Greg Friedman says that these strategies are being offered in ETF wrappers in response to customer demand among other factors, including performance. He notes that the strategies have offered good performance and have the potential to be “additive to [customers’] investment solutions.”

While FGRO targets companies expected to experience above-average growth, FMAG can invest in both growth and value securities as part of its broad mandate. FPRO will target real-estate-related securities, and FSMO will use a quantitative investment style and focus on companies that fall within the market capitalization range of the Russell 2500 Index.

“They’re all really different, but they all bring innovation and choice for our clients,” Friedman said of the new funds.

He further points out that Fidelity and other issuers are limited by what they can currently offer based on SEC restrictions on these types of products. It’s been less than a year since the first active ETFs debuted with alternative disclosure schedules, so the SEC is still getting comfortable with them. 

The Model

The Fidelity model includes a proxy portfolio that is publicly available on a daily basis along with the percentage by which it overlaps with the ETF’s actual portfolio.

What makes the Fidelity methods superior, according to Friedman, is the fact that the firm uses ETFs in its proxy portfolio in addition to securities disclosed in the previous holdings report. The ETFs are selected based on their correlations with the undisclosed securities, liquidity and costs to create a close tracking differential to the actual portfolio.

Holdings are reported on a monthly basis with a 30-day lag, Friedman says, noting that this is Fidelity’s standard for disclosure on its mutual funds and the model can adapt to any firm’s established disclosure schedule.

Contact Heather Bell at [email protected]