Fidelity, BlackRock seek to expand dominance in ETFs

Firms set to launch actively managed accounts, a move likely to stoke competition.
MAY 08, 2014
Fidelity Investments and BlackRock Inc. are deepening their alliance in the ETF business with the introduction of actively managed accounts. The firms, two of the world’s five largest money managers, said Thursday that their relationship will expand to include offering a BlackRock model portfolio for income-seeking investors through Fidelity’s managed-accounts platform. Analysts said the move, which builds on an initiative that provides many advisers’ clients with commission-free access to iShares ETFs, could complement the efforts of both firms to expand their dominance in the growing retail market for ETFs, and even raise the competitive stakes for other managed-account providers that use ETFs. “BlackRock is keen to leverage Fidelity’s pipeline and platform to get broader access to a retail-investor audience, and I think Fidelity is keen to leverage BlackRock’s expertise in ETF manufacturing, first and foremost, and portfolio and outcome-oriented strategy production,” said Ben Johnson, an analyst with Morningstar Inc. The managed account program — available to Fidelity retail customers starting May 1 — will not be available at the moment to advisers who hold assets in custody with Fidelity, according to a Fidelity spokeswoman Erica Birke. Their platform already offers access to a range of “other products with similar investment strategies available that are used by advisers today,” Ms. Birke said. Those ETF strategists, which include a variety of large advisory firms that manage portfolios using primarily ETFs, are major institutional clients of ETF firms like BlackRock. “This is a clear foray into what we’ve defined as the ETF managed-portfolio space, so I think they’re going to increasingly be entering more direct competition with some of their biggest clients,” said Mr. Johnson The new product — the BlackRock Diversified Income Portfolio — is described as a tactical, multiasset managed strategy investing globally. Fees will start at 1.1% annually for the first $200,000 managed, decreasing to 0.55% for accounts with $3 million or more, said Fidelity spokesman Robert Beauregard. In a statement, BlackRock managing director Sue Thompson said iShares has supported the growth of ETF strategists, whose asset allocation models are “complementary to the strategic and outcome-oriented model offered by Fidelity.” It was not clear whether the service will use iShares products exclusively. As part of their arrangement, BlackRock pays Fidelity, which promotes its funds and makes them available without the typical transaction commissions to millions of retail investors as well as about 3,300 firms on its adviser custody platform, representing 1.1 million clients at the end of last year. Fidelity is a major presence in the U.S. mutual fund industry but, until its relationship with BlackRock, the fund house largely missed the thundering growth of the ETF industry. The firm managed just one exchange-traded fund as the industry grew twelvefold from $130 billion in late 2003 to $1.6 trillion in 2013, when it launched 10 sector funds, subadvised by BlackRock. BlackRock acquired the iShares business as part of a 2009 transaction for Barclays Global Investors. Commission-free trading, which is now offered on some products at Fidelity, TD Ameritrade and the Charles Schwab Corp. platform, has been welcomed warmly by advisers. In a joint statement, BlackRock and Fidelity said investors and advisers put 86% more in the 65 iShares ETFs that are available without commission than in the year before and said that in their first five months, the Fidelity sector ETFs have gathered some $500 million in assets.

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