. The move will help the mutual fund giant cultivate a stickier customer base and stay relevant in the exploding age of ETFs.
While I recently noted that a departing Fidelity executive
at proprietary funds (
Fidelity Hints It May Get Into ETFs
), today's announcement is a major milestone for the Boston behemoth.
The 25 funds are a predictable bunch, including big-name index brands that could be mistaken for mutual funds at first glance. BlackRock acquired iShares in June.
iShares Russell 1000
iShares S&P 500
iShares S&P Growth
will all offer Fidelity traders inexpensive exposure to well-known indices.
Not to be boring, Fidelity will also offer access to other heavily traded ETFs. Also available commission-free will be the
iShares MSCI Emerging Markets
iShares iBoxx Investment Grade Corporate Debt
Too Little, Too Late?
Fidelity's announcement may be an admission of missed opportunities in the ETF space.
, a competitor in the mutual fund space, has already transformed the ETF industry with low-cost iShares knock-offs.
While Vanguard's most popular funds may not be examples of original thinking, they have shattered the mold in an industry where first-mover status is king. The
Vanguard Emerging Markets Stock ETF
, which goes head-to-head with iShares' EEM, raked in $1.2 billion in 2009, according to data from the National Stock Exchange. EEM, which was introduced earlier, netted $941 million.
The first lesson Fidelity must learn is that ETF investors are a discerning bunch. If they are presented with an identical product at a lower price point, they know how to bargain-hunt.
Fidelity's deal with BlackRock is limited in more ways than one. Customers are limited to 25 commission-free funds, while Fidelity hesitates to take the most important step: the introduction of proprietary funds.
The ETF industry is still in its adolescence, and there is plenty of room for a firm like Fidelity to make an impact.
introduced commission-free funds for customers in 2009, and
recently entered the ETF marketplace on the fixed-income side.
The most successful ETF issuers are able to step back and see where they can make an impact. Fidelity's reputation, loyal customer base, and dominance in the 401(k) space are a force to be reckoned with.
ETF investors, many of whom abandoned the sea of mutual funds for more transparent waters, have been slow to accept the type of actively managed ETFs that Rodger Lawson hinted at on his way out. Fidelity would be best served developing its own line of sector funds, based on its line of "Fidelity Select" mutual funds.
Fidelity may be late in joining the ETF game, but the firm could easily become a major player. Fidelity must move quickly and efficiently, coloring offerings with the firm's identity.
At the time of publication, Dion was long TIP.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.