ETFs & Mutual Funds Growing Together

March 11, 2016

Fidelity is well-known for its active mutual funds, but in the past 2 1/2 years, the firm has found significant success in the ETF space. Its lineup of sector funds launched in 2013 has amassed some $2.5 billion in assets, and its ETF platform boasts about $200 billion in assets under administration.

Anthony Rochte, president of Fidelity’s sector-investing unit known as SelectCo, tells us how things are going, and who’s driving that demand. Fidelity came into the ETF space in a really meaningful way about 2 1/2 years ago with a lineup of sector funds. There’s about $2.5 billion in assets today. Who’s driving that demand?

Tony Rochte: Let me give you a bit of background on how we arrived at this launch. In 2012, we formed a new division within Fidelity's asset management business, SelectCo, and that division was primarily focused on sector-based investing.

The initial focus of that initiative was our active sector mutual fund business. We've been investing specifically in sector-based investments for over 30 years. Today we have 44 actively managed sector and industry mutual funds. And at the end of 2015, just over $82 billion in assets.

Why that's interesting is that this has been a significant focus for us over the past four year. When we started this initiative, our assets in our active sector mutual funds were about $45 billion. So, we've seen significant growth in our active sector mutual fund lineup.

I give this background because the ETF effort around sectors was launched within SelectCo. What we realized is that there are certainly investors who still want active management, and they want active sector mutual funds.

But there's a subset of investors—both individual investors and financial advisors—who want to be more tactical with the way they use these sector exposures. And for that reason, we launched the now-11 sector Fidelity ETFs.

The asset growth in the ETF business has come in parallel to growing our active sector mutual fund lineup. For us, this has been a story about investors, retail and advisors looking at sector-based investing more and more, and we've seen growth in both categories. There have been a lot of mutual fund shops coming into the ETF space, and some say it’s more about survival, as mutual funds continue to lose assets to ETFs. What you’re saying is that, in Fidelity’s case, ETFs weren’t about survival, because both sides are growing?

Rochte: Yes. Our single focus is on providing a great investor experience for all types of investors, whether it's financial advisor, institutional investors or the self-directed retail investor.

Several years ago, we thought investors used mutual funds and ETFs very differently. But in many cases—particularly in the financial advisor market—it's not uncommon to see them using active mutual fund exposure alongside passive ETF exposure. Perhaps there's a tilt or an overlay to a well-diversified asset allocation strategy.

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