Fidelity Doubles Down on Themes - Adviser Investments

Fidelity Doubles Down on Themes

October 13, 2021

In This Issue:

Fidelity Doubles Down on Themes

Fidelity Investments has added four more new thematic exchange-traded funds (ETFs) to its lineup. The new additions bring Fidelity’s total ETF lineup to 46, including 33 thematic funds. The four new ETFs are passively managed, quantitative funds which use proprietary Fidelity indexes as their benchmarks.

Fidelity’s Four New Thematic ETFs

Fidelity thematic funds

In one sense, it’s not hard to understand Fidelity’s interest in themes: In the U.S., the amount of assets invested in thematic funds overall has more than tripled in the past 18 months, rising from about $49 billion at the end of December 2019 to more than $160 billion in March 2021, according to Morningstar.

On the other hand, a small group of funds is gathering the lion’s share of the business. While 41 thematic funds now boast assets over $1 billion, the top 10 largest funds account for just under half of the entire pie. A lot of those assets have been flowing to a few flashy names: Of that $160 billion, more than $40 billion was invested in four of Cathie Wood’s ARK Invest funds. (Wood’s hyper-bullish picks on stocks like Tesla have made her a media darling.)

Not one of Fidelity’s trendy new theme funds has cracked the billion-dollar barrier (though some of the older funds recategorized as “thematic” have). Collectively, the 14 new thematic funds and ETFs it launched in 2019 and 2020 have accrued $1.64 billion in assets.

Fidelity’s designated themes include megatrends, sustainability, outcome-oriented, differentiated insights and disruption. If those categories seem a little fuzzy, Fidelity is at least not alone. Thematic funds often describe themselves as investing in “innovation” or “disruption.” In practice, this might include anything from electric vehicles, cloud computing, DNA sequencing, artificial intelligence, financial technology and green energy to psychedelic drugs and “working from home.”

Some of the funds have performed well in their short tenure: Fidelity’s Water Sustainability Fund is up 36.6% since its April 2020 inception. But we’d still advise caution. As we’ve discussed, the broad cross-sector mandate of thematic funds makes it difficult to discern which funds are following a disciplined investment philosophy and which are just chasing a handful of trendy names or producing outside returns with risky, concentrated bets. Because thematic funds tend to select from a narrow range of names that are of-the-moment, they’re often volatile, and many quickly fall from grace when trends shift: According to Morningstar, nearly one-third of all thematic funds have closed in the last 10 years and 34% have underperformed the broader equity market.

Vanguard’s Retirement Blunder

They did the math, but not the calculus. That’s one way to explain Vanguard’s blunder this month, when they announced they were canceling a benefit for their employees (the Retiree Medical Account) that figured heavily in existing retirement plans.

Vanguard offered a lump sum of $40,000 in lieu of the accounts, to be paid out in the first quarter of 2022. That doesn’t sound so bad—until you learn that some longtime employees had accumulated upwards of $100,000 in their accounts and were relying on that money to cover medical expenses in their retirement. The abrupt announcement roiled employees, and Vanguard quickly backtracked, apologizing and announcing the program would be retained through 2022.

Helping millions of customers save for retirement while slashing benefits for your own employees was a tone-deaf move. But perhaps more worrisome is what it suggests about the company overall. Vanguard made its name as a low-cost leader, but after decades of lowering its fees, it seems to be running out of places to trim. The recently announced plan to merge institutional and investor share classes of its Target Retirement funds will offer investors a few basis points of savings, it’s true: The 0.03% reduction in expense ratios would amount to an annual savings of $38.75 on a $129,157 account (the average amount held in Vanguard’s 401(k) retirement plans). But what’s next?

The fact is that Vanguard is very, very big. It’s tough to squeeze more savings, even small ones, out of what is already a pretty lean operation. And the executive suite appears to realize that. Increasingly, the firm is emphasizing higher-margin offerings, including launching new actively managed funds, acquiring a direct indexer and offering private equity funds. Its employees are discovering that this may no longer be the same old Vanguard. Investors will have to keep a careful watch to make sure they don’t suffer the same fate.

Podcast: Is It Time to Convert to a Roth IRA?

Sometimes investors have to embrace short-term pain for long-term gain. When it comes to Roth conversions, the upfront sacrifice can be well worth it. But exactly when to convert to a Roth depends largely on your individual financial situation. There are three crucial questions to answer when you’re considering a conversion:

  • What will future tax rates be?
  • When do you need your money?
  • Where will the tax payment money come from?

In this episode of The Adviser You Can Talk To Podcast, Andrew Busa and Rick Winters answer those questions and address other key considerations, including why early retirement may create opportunities for conversion, the importance of tax diversity in retirement and the Roth IRA’s role in legacy planning. Listen and decide whether a Roth conversion is right for you! Or, to learn more about the nuts and bolts of Roths vs. traditional IRAs, try our Roth basics podcast or our special report on Roth conversions. Click to listen now!

Register for Our Quarterly Webinar!

You are invited to participate in Adviser Investments’ Fourth-Quarter Webinar: Booster Shots, Market Shocks and the End of Fed Intervention. Sign up here to register.

This interactive discussion will include our thinking on the markets and economy as they relate to the economic recovery and lingering impacts of the pandemic. You’ll hear from Chairman Dan Wiener and Director of Research Jeff DeMaso, and have your questions answered by Chief Investment Officer Jim Lowell, along with other members of our investment team.

As we close out 2021, we believe that untapped opportunities remain for investors with well-diversified portfolios—and we’re eager to share our thinking with you.

Adviser Investments’ Today’s Market Takeaways

There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.

Recently, Research Analyst Liz Laprade talked about the spike in energy prices, while Vice President Steve Johnson discussed how the common narratives about tech stocks are missing the big picture.

We hope you find these episodes engaging and accessible. If there are any topics you’d like us to address, please send an email to info@adviserinvestments.com!

About Adviser Investments

Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To.

Our minimum account size is $350,000.  To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.


Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice, and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

The Barron’s America’s Best Independent Advisors rankings consider factors such as assets under management, revenue produced for the firm, and quality of practice as determined by Barron’s editors. According to Barron’s, “around 4,000” advisory firms were considered for this recognition in 2020, with about 1,200 firms receiving recognition. The award sponsor has not disclosed how many firms were surveyed or considered for this recognition, nor the percentage of total participants that ultimately received recognition. For more information and a complete list of recipients visit https://www.barrons.com/advisor/report/top-financial-advisors/independent/2020. Years Received: 2020, 2019, 2018, 2017, 2016, 2015, 2014 and 2013.

The Barron’s Top Advisor Rankings by State (Massachusetts) (also referred to as Barron’s Top 1,200 Financial Advisors) considers factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. According to Barron’s, “around 4,000” advisory firms were considered for this award in 2021, with about 1,200 firms receiving recognition. For more information and a complete list of recipients visit https://www.barrons.com/advisor/report/top-financial-advisors/1000. Years Received: 2021, 2020, 2019, 2018, 2017, 2016, 2015 and 2014.

The Financial Times 300 Top Registered Investment Advisers is an independent listing produced annually by the Financial Times and Ignites Research. According to the Financial Times, in 2019, approximately 2,000 firms were invited to be considered for its list; 740 responded, with 300 being named to this list. The listing reflects each practice’s performance in six primary areas: Assets under management (70–75% of a firm’s score), asset growth (15% of a firm’s score), years in existence, compliance record, credentials and online accessibility. For more information and a complete list of recipients visit https://www.ft.com/content/44d2b2b2-6cef-11e9-9ff9-8c855179f1c4. Years Received: 2019, 2018, 2016, 2015 and 2014.

Awards referenced above do not consider client experience and are not indicative of such. Nor are awards indicative of future performance. Unless otherwise noted, Adviser Investments does not pay a fee to participate in any of these awards. Additionally, awards typically only consider and recognize participants that choose to participate. Awards are often based on information supplied by the participants—such information should not be assumed to be verified by the sponsor of the award.

The Adviser You Can Talk To Podcast is a registered trademark of Adviser Investments, LLC.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2021 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.