Fidelity Investments, the Boston-based fund sponsor that's
planning what appears to be a major push into the world of
exchange-traded funds, is one step closer to beginning that
initiative after receiving regulatory approval from the Securities
and Exchange Commission to begin marketing actively managed
The SEC, in a document dated May 10, 2013, granted Fidelity
"exemptive relief" to market active funds after the firm petitioned
regulators for such approval in December of last year. While the
paperwork suggested a broad and ambitious plan, it did specifically
say that it planned for its first active fund to be the Fidelity
Corporate Bond ETF.
That paperwork followed by almost exactly one year a separate
exemptive relief filing the company submitted to the SEC requesting
broad permission to market index ETFs. Together the two filings
provide a clear signal that Fidelity's move into the vibrant world
of exchange-traded funds is broad and ambitious.
Fidelity's plan to pursue active ETFs is totally separate from
its agreement with BlackRock's exchange-traded fund unit, iShares,
to make common cause on marketing broad indexing and sector
indexing ETF strategies.
As things stand, the company has only one exchange-traded fund,
an index strategy called the Fidelity Nasdaq Composite Tracking
Stock ETF (NasdaqGM:ONEQ) that it rolled out in September 2003 and
which now has about $200 million in assets, according to data
compiled by IndexUniverse.
ONEQ's launch was arguably quite timely, as rival fund
companies-including the now-No. 3 ETF company Vanguard-were barely
yet in the business of marketing ETFs themselves.
But because Fidelity never followed ONEQ's launch with rollouts
of any other ETFs, the company is now widely perceived as having
missed out on the early phase of ETF development.
A Multipronged Catch-Up Plan
The company behind the legendary Fidelity Magellan Fund and the
Fidelity Contrafund further signaled its newfound seriousness last
year when it named longtime ETF industry veteran Tony Rochte
to head up a new ETF operation called SelectCo.
Rochte had been a managing director at Boston-based State Street
Global Advisors, the No. 2 U.S. ETF company by assets after San
Francisco-based iShares, the unit of BlackRock.
Fidelity's two filings detailing plans for index as well as
active ETFs each contain the same noteworthy twist; namely, that
the company plans to make use of a "master-feeder" structure on
both types of funds.
Under such a structure, its ETFs would invest solely in a
"master fund" portfolio. That portfolio, in turn, could serve as
the basis for other ETFs as well as other investment vehicles, such
as traditional mutual funds. The structure recalls Vanguard's
patented fund structure under which its ETFs are a separate share
class of its mutual funds.
Additionally, the collaboration with BlackRock that Fidelity
made public in March is seen by some ETF industry sources as
emblematic of the next phase of ETF industry development; namely,
the strategic pairing of marketing and distribution.
If that's the case, then Fidelity may have figured out a shrewd
way of going from laggard to trailblazer in one far-reaching joint
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