Fidelity’s 'Disruptive' Thematic Funds Launch - Adviser Investments

Fidelity’s ‘Disruptive’ Thematic Funds Launch

April 29, 2020

In this issue:

Fidelity’s “Disruptive” Thematic Funds Launch

Fidelity has launched eight new thematic funds, six of which are intended to focus on “disruptive” companies and trends across a range of sectors. These additions to their lineup were first revealed in December, but the official announcement contains some more details about the funds—including a novel pricing scheme.

As we mentioned in our initial coverage, thematic funds may invest in companies across a range of sectors, sizes and styles; the link between each of the funds’ investment mandate is adherence to a “theme,” a broad-based thesis about the direction of the overall economy or society (for example, that the desire of investors to direct their funds to ethical companies means that such companies will outperform their competitors).

Fidelity’s thematic lineup comprises five broad categories of funds: “Disruptive,” “Megatrends,” environmental, social and corporate governance (ESG), “Outcome-oriented” and “Differentiated insights.” The funds launched this month include six disruptive funds and two megatrends.

According to Fidelity, the disruptive funds invest in “innovative business models, emerging industries, and technologies that are changing the status quo,” while the megatrends funds seek opportunities in “long-term trends affecting our world.”

Fidelity’s New Thematic Funds

wdt_ID Fund Name Theme  Expense Ratio Ticker

Note: Expense ratios as of 4/21/20. Source: Fidelity Investments.

All eight funds were launched with an expense ratio of 1.00%. However, Fidelity has a trick up its sleeve when it comes to enticing investors into the “disruptive” suite of funds: If an investor sticks with the fund for a year, their shares will automatically be converted into a new “Loyalty” share class, and their expenses will be reduced by 0.25%; stick around for three years or more and you’re converted into the second tier of Loyalty shares, and expenses will drop to 0.50%, half the initial rate. Shares must be purchased through a Fidelity account to qualify. There are no investment minimums.

The so-called time-based pricing feature on the disruptive funds is intended to encourage long-term investing aligned with the disruptive funds’ strategies, the firm said in a statement.

At Adviser Investments, we’ve long been proponents of long-term thinking when it comes to markets—as we’ve said before, successful investing is about time in the market, not market timing. Funds shifting their fee structure to reward investors who take a long-term approach is a move we applaud. But we remain wary of thematic funds in general—this trendy new investment style remains unproven. Saving 0.50% in costs is welcome—but not at the price of staying in an underperforming fund.

Webinar: Separating Pandemic Noise From Investment Signals

The past few months have been historic. The coronavirus pandemic shoved our slow-growth economy into recession, putting an end to the 11-year stock bull market—from a human, economic and investment viewpoint, the virus’ spread has taken a swift and steep toll.

Last Wednesday, in our live, interactive quarterly webinar, we shared our views on the markets’ response to this unprecedented event and our expectations for the months ahead. We’ve posted a replay on our website, which you can view at your convenience by clicking here.

Account Manager Diana Linn moderated a wide-ranging discussion with members of our investment team. Chairman Dan Wiener and Director of Research Jeff DeMaso offered their thoughts on the value of diversification in weathering this crisis, and discussed how this bear market compares to others and what to look for when it comes to recovery.

In our question-and-answer section, Chief Investment Officer Jim Lowell, Vice President Charlie Toole and Equity Analyst Kate Austin answered questions about the strength of the market’s recent reboundbear market psychology, what to make of TV media coverage of the crisis and how the downturn has impacted dividend stocks, among other topics.

As events continue to unfold, we’ll be updating our podcast and blog page regularly to keep you informed of the latest economic and investment market developments and our response.

Podcast: Coronavirus Reopening—Risks and Opportunities

Slowly and shakily, some parts of the country are taking steps to reopen their economies—does this mean we’re finally on the road to recovery?

In this special episode of The Adviser You Can Talk To Podcast, Chairman Dan Wiener and Chief Investment Officer Jim Lowell discuss what we know so far about the devastating economic impact of this pandemic, the signals we’ll be monitoring to see if the recovery has truly begun and the few bright spots we’ve observed amongst the barrage of negative impacts on families, communities and businesses. Topics include:

  • How the slow reopening of some businesses will affect the economy overall
  • What the economic data for the first four months of the year reveal
  • Industries positioned to thrive when recovery gets underway

“Normal” is still a long way away—and when it gets here it may not look like it did before. But we’re already preparing for it. Click here to listen now!

Fidelity and Vanguard Close Money Markets With Yields Under Pressure

The continuing coronavirus crisis and resulting market volatility sent interest rates on a wild ride the past two months, with yields on money market funds coming under pressure.

The Federal Reserve took swift action back in March to help make sure money market funds wouldn’t “break the buck,” that is, see the net value of their assets dip below $1 per share. The Fed’s new Money Market Mutual Fund Liquidity Facility provides loans to funds and broadens the range of assets they can invest in, ensuring that savers aren’t at risk of losing money in their money market fund accounts.

Though funds stashed in money markets may be safe from losses, investors seeking any gains may be out of luck. Across the board, money market yields are bouncing around in ways we haven’t seen since the financial crisis of 2008. With many investors shifting assets into money markets and the Fed keeping interest rates at 0% to 0.25% for the foreseeable future in order to provide stimulus to the broader economy, money market fund yields are drifting lower.

Many fund providers may soon be forced to waive their fees to keep money market fund yields from going negative. We won’t have a clear picture on whether fund sponsors are waiving fees until they release their semiannual SEC reports in several months. But Fidelity and Vanguard have already closed some of their Treasury money market funds to new investors in an effort to keep yields in positive territory.

The pressure on yields hasn’t kept safety-seeking investors from pouring into money markets. But that margin of safety may come with a high price—after the crisis of 2008, many money markets were stuck with near-zero yields for much of the following decade as stocks took off on an 11-year bull market run. This is one of the reasons why we view money market funds as a cash management tool and not a long-term investment. They provide valuable safety and liquidity, but won’t grow your wealth.


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Barron’s Top 100 Independent Wealth Advisors

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Years Received: 2019, 2018, 2017, 2016, 2015 & 2014

Barron’s Top Advisor Rankings by State (Massachusetts)

The Barron’s Top Advisor Rankings by State (Massachusetts) (also referred to as Barron’s Top 1200 Financial Advisers) considers factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. 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/report/top-financial-advisors/1000/2019

Years Received: 2019, 2018, 2017, 2016, 2015 & 2014

Financial Times 300 Top Registered Investment Advisers

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 2000 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 & 2014

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