In early December, Fidelity Investments went “state of the art” in updating its exchange-traded fund application, according to one of my sources.
While I detailted in my story at The Wall Street Journal that filing is very preliminary (as was pointed out in Index Universe in early December and Barron’s more recently), there is no reason to think that Fidelity can’t take market share in ETFs almost immediately. Schwab’s growth to $5 billion in ETF AUM in less than 2 years is the proof Fidelity needed.
Granted that the simplicity of ETFs is that they are exchange-traded, meaning that anyone with exchange access can trade the products, Fidelity has access to a giant community of individual investors and advisors that many start-up ETF providers do not. While other brokers - including Schwab, Scottrade and TD Ameritrade and now E-Trade - have teased their own ETFs with low-cost or zero commission trades, Fidelity knows from its current relationship pitching 30 iShares ETFs at $0 how well that works.
At Charles Schwab, they will gladly take long term assets under management (even at 0.06 bps) against the friction of a $9.95 trade.
Fidelity closed November with $93 billion in indexed assets under management, less than 10% of its total mutual fund assets. The company also has the solid Fidelity Select mutual fund franchise that could mimic (with a twist) the Select Sector SPDRs from SSgA.
Many have asked me what this may mean for Fidelity, the ETF market or even their Fidelity-administered 401(k) plan. At this point, it’s too early to tell, but there’s no doubt that interested parties should take notice.
