Fidelity aims to convert $13.2bn in mutual funds to ETFs

Fidelity plans to convert six mutual funds with a combined $13.2bn in assets into ETFs in November this year, a regulatory filing shows.

The funds are all actively managed, according to the filing, which lists the $5.2bn Large Cap Value Enhanced Index, $2.3bn Large Cap Growth Enhanced Index, $1.8bn Large Cap Core Enhanced Index, $1.7bn Mid Cap Enhanced Index, $1.6bn International Enhanced Index and $532mn Small Cap Enhanced Index funds. They will all convert to similarly named ETFs.

No changes will be made to the funds’ investment processes or management teams.

Fidelity expects the conversion to provide “multiple benefits” for investors, including additional trading flexibility, increased portfolio holdings transparency, lower expenses, and the potential for enhanced tax efficiency, the filing notes.

“These strategies utilise quantitative models to evaluate the attractiveness of stocks to construct portfolios and manage risk,” said Greg Friedman, Fidelity’s head of ETF management and strategy, adding that the asset manager was continuing to look for ways to build its ETF line-up.

The Large Cap Value Enhanced Index, Mid Cap Enhanced Index and Small Cap Enhanced Index funds all had outflows during the year ended May 31, Morningstar Direct data shows.

This article was previously published by Ignites, a title owned by the FT Group.

The Large Cap Value Enhanced Index fund bled the most, with investors pulling $780mn over those 12 months. Meanwhile, the Small Cap and Mid Cap Enhanced Index funds shed $46mn and $756,000, respectively.

The Large Cap Growth Enhanced Index, Large Cap Core Enhanced Index and International Enhanced Index funds all recorded net outflows during the same year, according to Morningstar.

Investors piled $609mn into the Large Cap Growth Enhanced Index Fund, $232mn into the Large Cap Core Enhanced Index Fund and $178mn into the International Enhanced Index Fund that year.

Some 49 mutual funds have been converted to ETFs since March 2021, Morningstar Direct data shows.

Between March 2021 and February 2023, converted ETFs pulled in a collective $10.5bn in net inflows post-conversion, but the lion’s share of those flows went into four newly minted ETFs sponsored by Dimensional Fund Advisors, a February Ignites analysis showed. Overall, around 60 per cent of converted ETFs have recorded net inflows post-conversion, as of February 1.

AllianceBernstein, Touchstone, Neuberger Berman and Hartford Funds have filed to convert mutual funds to ETFs since February.

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Meanwhile, Janus Henderson chief executive Ali Dibadj told investors this month that the firm had no plans to convert any mutual funds to ETFs.

Likewise, Capital Group’s head of ETFs, Holly Framsted, said in an interview that ETF conversions might not be “the right solution” for the firm’s clients.

Fidelity’s 366 mutual funds had $2.29tn in assets as of May 31 and recorded combined net outflows of $26.1bn during the year to the end of May, Morningstar data shows.

The firm’s $34.7bn suite of 52 ETFs pulled in a combined $1.3bn during the same year.

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