The Fidelity Select sector mutual funds could soon be getting an exchange-traded makeover. At least that's what Fidelity Investment's latest hire has some in the industry thinking.
Fidelity has rehired Anthony Rochte, formerly a senior managing director at State Street Global Advisors, the second largest ETF provider in the U.S., to run a “new division focused on specialized sector investments,” according to a Bloomberg report. Mr. Rochte worked in Fidelity's Institutional Investments brokerage group from 1996 to 2000. He joined State Street in 2006, following six years at
BlackRock Inc.'s iShares.
With Mr. Rochte's background in ETFs and his new role running a division focused on sector investments, it seems like a no-brainer to some that Fidelity would re-launch those strategies as active ETFs.
“It would be a logical next step,” said Robert Goldsborough, an ETF analyst at Morningstar Inc. “Given that the sector funds already exist and they're popular with advisers, it would make a tremendous amount of sense to move that competency over to ETFs.”
Advisors have been increasingly turning to ETFs for sector-rotation strategies because of the ease with which they can trade the products. “Since the financial crisis, it's something a lot of investors have taken an interest in,” Mr. Goldsborough said.
Since the Fidelity Select Sector funds are actively managed, they would likely have higher expense ratios than the existing sector ETFs, but Mr. Goldsborough doesn't see that as a hurdle. “With sector ETFs, price matters, but it's not the be-all-end-all. You need to have experience doing it,” he said.
The Vanguard Group Inc. and State Street have engaged in a bit of tit-for-tat recently when it comes to the fees on their sector ETFs. Late last year, Vanguard cut the fees on its sector ETFs to 0.19%, from 0.24%. And last month, State Street cut the fees on its sector ETFs to 0.18%, from 0.20%. Both companies denied any kind of fee war and said that the reductions in cost reflected the ETFs' increased assets.
Fidelity launched its first ETF in 2003, but since has been dormant on that front. It signaled that could change in December when it filed with the Securities and Exchange Commission to expand its ability to launch ETFs to include actively managed funds.
Whether or not Fidelity goes the sector fund route, the hiring of Mr. Rochte says that it's taking ETFs seriously, said James Lowell, editor of the Fidelity Newsletter.
“You don't put an ETF quarterback on the field unless you think ETF plays can help you win the game,” he said.
"We’re still in the early stages of exploring various strategic options and many decisions have yet to be made regarding the new division," said Adam Banker, a Fidelity spokesman.
