As the exchange-traded fund industry gains a larger foothold in the U.S. capital markets, both Fidelity Investments and TD Ameritrade are plunging deeply into the ETF space.
Fidelity last week received Securities and Exchange Commission approval to set up a series of actively managed ETFs, and TD Ameritrade on Tuesday launched a new ETF Knowledge Center designed to arm retail investors with education about ETFs.
The two financial firms’ raised stakes in the ETF market come as these funds saw record inflows of $191 billion in 2012, with assets under management totaling $1.4 trillion. In 2013, the average ETF allocation in advisors’ client portfolios is expected to rise to 7.8%, up from 7.1% in 2011 and 2012, according to Cerulli’s Exchange-Traded Fund Markets 2013 annual report, released in May.
“This is notable because growth has been stagnant in previous years,” said Alec Papazian, associate director in Cerulli's asset management practice, in a statement. “Advisor adoption of ETFs continues to be the foundation of growth for the industry.”
Almost two-thirds of wirehouse advisors report using ETFs, the highest percentage out of all the channels. More than half of registered investment advisors (RIAs) are using ETFs, and fewer than 50% of advisors in the remaining channels use ETFs, Papazian said.
Top competitors have been watching Fidelity, according to an article in Barron’s, “Letting Fido Off the Leash,” which asserts that Fidelity as well as T. Rowe and Franklin Templeton “have what it takes to shake up the ETF industry.”
“Despite the crowding of the ETF market, sheer size and distribution can hugely help a latecomer, and Fidelity has both in spades," wrote Brendan Conway for Barron’s. "That worked for Charles Schwab and PIMCO, which built fast-growing ETF businesses managing a combined $18 billion, even though their oldest products are barely three years old.”
The SEC has already approved active ETF applications from T. Rowe and Franklin Resources, Reuters noted Tuesday in a report on Boston-based Fidelity’s successful application.
Fidelity is expected to open a line of ETFs focused on various sectors of the U.S. equity market, according to Reuters, but Fidelity spokesman Jeff Cathie declined to comment on specific plans. “We have not launched any active ETFs at this time,” Cathie said in an email. “We continue to evaluate the product needs of our clients and it would be premature to discuss our product plans, including when we may introduce ETFs.”
Fidelity’s ETF investment management strategy is focused on building its active, smart beta and passive sector investment management capabilities to complement existing mutual funds, Cathie said, adding that the active market is still an emerging area of ETFs, representing only about 1% of total ETF assets.
Fidelity launched its only passive ETF, Fidelity Nasdaq Composite Index (ONEQ), in 2003. In addition, Fidelity for years has provided both individual investors and advisors access to more than 1,000 ETFs, including the recently announced strategic alliance with BlackRock to offer commission-free online trading on 65 iShares ETFs.
As for Omaha-based TD Ameritrade, according to the brokerage’s release its new ETF Knowledge Center includes video tutorials, articles and announcement about ETFs “from the basics to in-depth specialty topics” such as ETF diversification, how to build a low-cost portfolio of ETFs and risks associated with leveraged and inverse ETFs.
“Our new ETF Knowledge Center is designed to help investors make choices in a way that eliminates extra clicks, provides objective research more directly and makes building a portfolio more visual and intuitive,” said Marco De Freitas, head of products for TD Ameritrade, in a statement. “The more help and guidance we as an industry can provide to help simplify what can seem like an overwhelming selection of investment alternatives, the better for everyone.”
Read ETF Guide editor Ron DeLegge’s Fidelity Expands Menu at AdvisorOne.