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Fidelity Launches Thematic Funds With Time-Based Fee Discounts

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Fidelity Investments has launched eight new actively managed thematic mutual funds, most of them priced to attract long-term investors.

Six of the eight funds provide discounts to their 1% expense ratio if investors remain in the funds for at least a year. That discount is 25%, and it grows to 50% if the investors stay with the fund for three years.

“We designed this new time-based pricing structure to encourage long-term investing aligned with the disruptive funds’ strategies,” said Colby Penzone, head of investment product for Fidelity, in a statement.

He noted that disruptive strategies are often thought of as short-term investments, but their impact and duration tend to continue much longer. “The disruptive funds are designed to capture long-term opportunities and we want to reward our customers by taking a similarly long-term view in their accounts,” Penzone said.

The six disruptive funds are:

  • Fidelity Disruptive Automation Fund (FBOTX)
  • Fidelity Disruptive Communications Funds (FNETX)
  • Fidelity Disruptive Finance Fund (FNTEX)
  • Fidelity Disruptive Medicine Fund (FMEDX)
  • Fidelity Disruptive Technology Fund (FTEKX)
  • Fidelity Disruptors Fund (FGDFX)

The other two new funds are the Fidelity Agricultural Productivity Fund (FARMX) and Fidelity Water Sustainability Fund (FLOWX).

Todd Rosenbluth, director of mutual and exchange-traded fund research at CFRA, says the fee discounts are compelling. ”These are long-term strategies, and investors staying loyal to those strategies stand to benefit from the opportunity of those themes playing out,” says Rosenbluth. 

Those investors will also own shares in actively managed funds whose themes are similar to “long-term megatrends that have been gaining traction in the ETF space” for a very competitively priced fee if they hold those fund shares for the long term, according to Rosenbluth.

The Fidelity Disruptive Communications Fund, for example, invests in many of the same types of stocks as Global X Cloud Computing ETF (CLOU). The Fidelity fund’s fees will fall to 75 basis points after one year, moving investors into Loyalty Class 1 shares, and to 50 basis points after three years (for Loyalty Class 2 shares). Fees for index-based CLOU are 68 basis points.

How competitive the pricing of the new Fidelity funds are depends, of course, on how long investors maintain their shares.

The long-term approach can also help the managers of these Fidelity funds. They may not have to be as concerned about having cash on hand for redemptions, which is a perennial challenge for the managers of actively traded mutual funds. This novel approach can also help Fidelity attract investors at a time when many investors have been dumping mutual fund and ETF shares in favor of cash.

— Check out Fidelity Plans to Hire 2,000 People on ThinkAdvisor.


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