Fidelity Investments in the U.S. is debuting a suite of 10 sector ETFs at an MER of 0.12%.
Comparable suites include Vanguard’s sector ETFs, most of which are offered at 0.14%. Its Financials fund charges 0.19%.
“Fidelity’s ETFs will add to the existing group of Vanguard, iShares and State Street sector funds,” Pat Chiefalo, a director and ETF strategist at National Bank Financial, says. “The MSCI indices Fidelity will be using offer the broadest coverage of their respective sectors, similar to Vanguard’s family. State Street’s ETFs offer larger-cap sector exposure, with iShares somewhere in the middle. We view these broader coverage mandates as more appropriate for longer-term holds than shorter-term tactical plays.”
But John Hood of J.C. Hood Investment Counsel says Fidelity’s expansion “doesn’t affect things an awful lot” for clients who already have ETF investments, especially in non-registered accounts.
“I don’t care if the MERs are zero – I’m not going to take a 25% capital gains hit to switch. If they’re two points below, who gives a damn?”
He says he’d consider putting new money into Fidelity’s funds, but “nothing where I’ve got established capital gains.”
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Most of his clients are former mutual fund investors looking to reduce their MERs, and “they have no loyalty to funds. The fact that Fidelity is coming in – they’re not going to be aware of that.”
As for the wider implications for the industry, Hood says ETFs providers are divided into two camps: basic indexers and value-added players, with the latter sometimes being “much more expensive, getting toward 65 basis points.”
He says providers are “trying to find some way to wiggle into the marketplace that’s brand new. […] But just because there’s a new asset class doesn’t mean you have to own it.”
Yves Rebetez of ETF Insight adds, “Costs for traditional methodology ETFs continue to decline as competition looks to cost as a differentiator. [The] importance of scale can thus only increase for providers, [which is] something Fidelity is presumably hoping to capitalize on, given the company’s heft on the mutual fund side.”
Advisors can help by addressing clients’ needs “in a cost-competitive fashion through ETFs.” Rebetez suggests offering more customized solutions through “cheap beta access, while adding value and allocating risk and expenses accordingly.”
According to a prospectus filed with the SEC October 18, Fidelity will be offering:
Fidelity MSCI Consumer Discretionary Index ETF
Fidelity MSCI Consumer Staples Index ETF
Fidelity MSCI Energy Index ETF
Fidelity MSCI Financials Index ETF
Fidelity MSCI Health Care Index ETF
Fidelity MSCI Industrials Index ETF
Fidelity MSCI Information Technology Index ETF
Fidelity MSCI Materials Index ETF
Fidelity MSCI Telecommunication Services Index ETF
Fidelity MSCI Utilities Index ETF
BlackRock Fund Advisors with subadvise the fund for Fidelity.
Fidelity currently offers one ETF, the Nasdaq Composite Tracker Stock.
More to come.