Fidelity Investments is the latest asset manager to bring to market actively managed nontransparent ETFs.
Fidelity today introduced three such equity ETFs, each charging a 0.59% expense ratio: the Fidelity Blue Chip Growth ETF (FBCG), Fidelity Blue Chip Value ETF (FBCV) and Fidelity New Millennium ETF (FMIL). They are the firm’s first actively managed equity ETFs.
All three are available commission free, trade on the Cboe BZX Exchange and use a tracking basket methodology that allows the ETF to trade without disclosing its actual holdings on a daily basis as most ETFs do. The tracking basket will include some but not all of the ETF holdings and will be published daily on the ETF’s website along with its overlap with the actual holdings of the ETF on the prior business day. The actual ETF holdings will be published monthly with a 30-day lag on the Fidelity website.
The three new active equity ETFs “harness the power of Fidelity’s 74-year-old legacy of active management delivered with the tax efficiency, trading flexibility and potential cost efficiency benefits ETF vehicles offer,” said Greg Friedman, the firm’s head of ETF management and strategy. The firm’s legacy of active management includes actively managed equity mutual funds, bond mutual funds and ETFs.
At the Inside ETFs conference in late January, Friedman described the advent of nontransparent ETFs as “the next evolution” of ETFs, “how you get active strategies in equity form.” He explained, “There have been active strategies to date with fixed income — very successful, but now we’re able to bring as an industry to our clients and our shareholders active equity for ETFs.”
Fidelity is the third asset manager to introduce nontransparent active ETFs, which aim to provide most of the benefits of an ETF such as tax efficiency, trading throughout the day and lower costs along with active management without revealing the manager’s “secret sauce” with daily disclosure of holdings. These ETFs are essentially a lower cost alternative to actively managed funds. Many more asset managers are expected to follow either with their own proprietary structure or through licensing structures developed by outside firms.
To date, just two other asset managers have launched nontransparent ETFs: American Century Investments and Clearbridge, in partnership with Legg Mason. Those three ETFs — the ClearBridge Focus Value ETF (CFCV) and the American Century Focused Dynamic Growth ETF (FDG) and American Century Focused Large Cap Value ETF (FLV) — all use the ActiveShares structure from Precidian Investments. Under that structure holdings are disclosed quarterly with a 15-day lag and only a representative of the ETF’s authorized participants will have knowledge of the fund’s daily holdings.
Recently BlackRock filed to license the ActiveShares structure and Goldman filed to license Fidelity’s proprietary nontransparent methodology.
In addition to the three new ETFs, Fidelity’s ETF lineup includes three actively managed bond ETFs, 14 factor ETFs, 11 passive equity sector ETFs and Fidelity ONEQ, the Nasdaq Composite Index Tracking Stock. Its platform offers individual investors and advisors access to more than 2,000 ETFs, commission-free.
— Related on ThinkAdvisor:
- Second Asset Manager Launches a Nontransparent ETF
- Goldman Licenses Fidelity’s Nontransparent ETF Structure
- First Nontransparent ETFs Start Trading
- Will Nontransparent ETFs Be Transformational?