Fidelity To Convert Thematic Funds to ETFs

Fidelity To Convert Thematic Funds to ETFs

Fidelity is planning its first mutual-fund-to-ETF conversion in an effort to bolster its flagging lineup of thematic “disruptive technologies” funds.

The six Fidelity Disruptor funds will become ETFs next June, the firm disclosed last month.

As we’ve covered several times, Fidelity has leaned hard into thematic funds in recent years. When the Disruptor funds launched in 2020, they fleshed out a suite of 20-plus thematic options. Thematic funds tend to have broader investment mandates than traditional funds, with fund managers empowered to buy into companies across a range of sectors and sizes, so long as they match the overarching theme of the fund. Fidelity’s themes include ESG, “megatrends” and “differentiated insights” along with the Disruptor lineup. Fidelity added even more thematic ETFs in 2021.

So far, however, it seems the Disruptor lineup hasn’t attracted the level of inflows Fidelity had hoped for. None of the six funds set for conversion has topped $100 million in assets.

Fund Name Assets
Fidelity Disruptors $96M
Fidelity Disruptive Automotive $91M
Fidelity Disruptive Technology $80M
Fidelity Disruptive Finance $48M
Fidelity Disruptive Medicine $47M
Fidelity Disruptive Communications $34M

 

The funds’ strategies and objectives will not change after the switch. What will change is the management fees, which will drop to 0.50% from 0.99% and 1% for the mutual fund versions.

Even with fees cut in half, our reservations about thematic funds remain: Too often, “theme” is simply a synonym for “gimmick” and the managers’ broad mandates enable them to chase trends rather than practice investment discipline.

But we do think it’s notable that Fidelity is choosing to convert these funds rather that shutter them. While actively managed ETFs have been around for over a decade, the first mutual-fund-to-ETF conversion took place only 18 months ago. More have followed, and Fidelity’s decision suggests that it believes the tax advantages of the ETF structure are attractive enough to investors that its most conviction-driven, actively managed funds might prove more popular in an exchange-traded format.

Chart of the Week: Shipping Costs Suggest Smooth Sailing

 By Jeff DeMaso, Portfolio Manager

China’s zero-COVID-19 policy and resulting protests have analysts worried that exports will be disrupted once more. But what’s not getting nearly as much airtime is how much things have improved since the start of the year. The result? Shipping costs are coming down.

One way to measure the improvement is by analyzing traffic at the Los Angeles port. At the start of the year, more than 100 ships were backed up at sea waiting for a berth to unload. Today there are zero.

 

number of ships waiting to dock at ports decline
Note: Chart shows the number of ships waiting to dock at the ports of Los Angeles and Long Beach in California. October data as of 10/21/22; November data as of 11/22/22. Sources: Marine Exchange of Southern California, The Wall Street Journal.

So, as the backlog clears, shipping costs are decreasing. The Shanghai Containerized Freight Index, a gauge of shipping prices out of China, is at one-third its June level. The average price for shipping a 40-foot container fell to its lowest level in two years earlier last month.

Backlog cleared. Supply chain becoming unkinked. Shipping costs down. That translates into lower inflation—and should continue to in the months and quarters ahead. Of course, you won’t see that in the headlines…because bad news sells.

Podcast: All About the Crypto Crash

What the heck is going on with crypto? The headlines have been inescapable since crypto broker FTX went down in flames. But what actually happened with FTX? Will its failure take down the rest of the crypto sphere? And what, if anything, does it mean for your portfolio?

Portfolio Manager Jeff DeMaso and Senior Research Analyst Liz Laprade are here to help sort out the mess and offer some lasting lessons from this slow-motion train wreck. Listen today!

Adviser Takeaways

In recent Takeaways, Wealth Adviser Diana Linn discussed the stalled student loan forgiveness effort, while Senior Research Analyst Liz Laprade explained why upbeat data on the broader economy might not translate to good news for investors.

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

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