(Bloomberg) — Fidelity Investments, one of the country’s largest asset managers, is making its first foray into converting some of its mutual funds into ETFs.
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The Boston-based company on Wednesday unveiled plans to convert six of its topical mutual funds into actively managed exchange-traded funds. Fidelity expects to complete the conversion by June 2023.
The conversion will bring its active equity ETF lineup to 15 funds from nine existing funds. The funds currently have about $720 million in assets under management as of October 31, while the assets of six thematic mutual funds total about $430 million, according to emailed comments from the person. Fidelity’s statement.
Over the next decade, more than $1 trillion in mutual fund assets could be converted into an ETF, according to an analysis by Bloomberg Intelligence. That would represent a huge boost to the $6.5 trillion US ETF market.
Each new ETF will have an expense ratio of 0.50%, which is close to the industry average. Prior to the conversion, the mutual fund’s expense ratio will decrease from 1% to 0.50% on or about April 1, 2023.
“Fido has little to lose with this transition,” said Henry Jim of Bloomberg Intelligence. “They are halving fees on a relatively small asset base, and in return they are getting a set of themed ETFs that are cheaper to operate and easier to sell to more customers.”
The mutual fund conversion trend gained traction last year after Dimensional Fund Advisors completed one of its first formal efforts in June 2021. In June, JPMorgan completed the conversion of four funds mutual funds include the $1.3 billion JPMorgan Inflation-Managed Bond Fund. In October, Neuberger Berman converted the only US commodity mutual fund into an ETF.
Tax efficiency is often cited as a reason to make the switch. “More and more investors are looking for tax efficiency, trading flexibility and potential cost-effectiveness benefits,” said Greg Friedman, head of ETF strategy and management at Fidelity. performance of ETF vehicles.
The company said in a statement that all convertible ETFs will be led by the same portfolio managers as mutual funds. Fidelity manages a total of 51 ETFs with $28 billion in assets.
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