Displaying items by tag: Fidelity

Fidelity recently conducted a survey of advisors and found that only 26% currently have exposure to alternative investments. In contrast, 86% of institutional investors have exposure to the asset class. 

The survey also revealed that many advisors are looking for more resources to help them evaluate various alternative offerings before they feel comfortable recommending them to clients. This is despite other surveys showing that many advisors would like to increase allocation to alternatives due to their benefits such as diversification and non-correlated returns. 

Specifically, advisors cited the need for more due diligence on strategies and managers in addition to concerns about liquidity as obstacles to adoption. Many also indicated the difficulty of communicating with clients about these products given the number of options and complexities.

Adding to the challenge is that each clients’ appropriate exposure to alternatives depends on factors like time horizon, liquidity needs, and eligibility. This level of customization increases the burden on advisors to understand various options in a comprehensive manner. 

In order to address these problems, Fidelity is expanding research on various alternative investment strategies. Initially, the research will focus on private credit, private real assets, and private equity funds. According to the company, these types of tools and resources will accelerate adoption of alternatives by advisors. 

Finsum: A recent survey by Fidelity showed that many advisors have been slow to adopt alternatives. A primary reason is that advisors have a need for more due diligence on the various products and strategies before they feel comfortable recommending them to clients.

Fidelity Investments launched a new active fixed income ETF this week, the Fidelity Low Duration Bond Factor ETF (FLDB). The ETF will invest 80% of its assets in short duration, investment-grade debt, consisting of floating rate notes and Treasuries, with a fee of 20 basis points. It seeks to balance credit risk and interest rate risk while outperforming benchmarks. 

Greg Friedman, Fidelity’s head of ETF management and strategy, noted, “It’s an asset class within fixed income that did not have any coverage until this morning. It fits a client's need to have that short duration exposure to a broad-based market of fixed income products.” 

Fixed income ETFs are experiencing a boom in terms of new issues and inflows. According to Tony Kelly, the co-founder of BondBloxx, assets in fixed income ETFs will reach 40% by the end of the decade from 20% currently. Active ETFs are finding traction as they allow for specific thematic exposure without sacrificing liquidity. Last year, assets under management for active ETFs increased by 37%. 

Fidelity is also jumping on the trend. In addition to launching FLDB, it debuted the Fidelity Fundamental Large Cap Value ETF (FFLV).  Its new line of ‘Fundamental suite ETFs’ will be active as it will utilize a quantitative overlay to their typical process. In total, Fidelity has 66 ETFs with $55 billion in assets under management. 

Finsum: Fidelity is betting big on active ETFs as it launched 2 new ones this week. Investors have been receptive to these products as it gives them narrow exposure in a liquid vehicle. 

A major development in 2023 was the boom in active fixed income ETFs as measured by inflows and launches of new ETFs. Some reasons for interest in the category include opportunities for outperformance, lower volatility, and diversification. Ford O’Neil, fixed income portfolio manager at Fidelity Investments, sees structural reasons for the asset class’s recent success and believes it will continue.

According to O’Neil, there is more potential for outperformance in active fixed income vs equities, because indices only cover about half of the total bond market. In contrast, equity indices encompass a much larger share of the entire stock market. This means that the market will be less efficient, resulting in more undervalued securities. 

Active managers are also able to better navigate the current landscape, where there is considerable uncertainty about the economy and monetary policy given more latitude when it comes to security selection. He notes that active fixed income ETFs have delivered strong outperformance vs passive fixed income ETFs over the last 8 years. 

He stresses that identifying these opportunities is dependent on proper fundamental research and quantitative analysis followed by effective implementation. O’Neil is the co-manager of several active fixed income ETFs including the Fidelity Total Bond ETF (FBND) or the Fidelity High Yield Factor ETF (FDHY).

Fidelity Investments recently announced it was adding to its active fixed-income strategies lineup with the launch of the Fidelity Municipal Core Plus Bond Fund (FMBAX). According to Fidelity, FMBAX is available commission-free and with no investment minimum to individual investors and financial advisors through Fidelity’s online brokerage platforms. The fund has a 0.37% net expense ratio and a 1.28% gross expense ratio. FMBAX is measured against the Bloomberg Municipal Bond Index and the Fidelity Municipal Core Plus Bond Composite Index, and aims to provide a high current yield exempt from federal income taxes, and may also consider capital growth. Co-managers Cormac Cullen, Michael Maka, and Elizah McLaughlin will analyze the credit quality of the issuer, security-specific features, current and potential future valuation, and trading opportunities to select investments. The fund launch comes at a time when the retail and institutional demand for higher-yielding municipal bond funds is growing. According to the fund giant, this new product seeks to offer a strong yield and total return profile, with potentially lower volatility than pure high-yield funds. Jamie Pagliocco, Fidelity’s fixed income head has this to say about the fund launch, “Fidelity’s growing suite of active fixed income investment products leverage Fidelity’s breadth and depth of resources and expertise as an active manager to identify investment opportunities across the credit spectrum.”

Finsum:Fidelity Investments launched an active municipal bond mutual fund amid increased retail and institutional demand for higher-yielding municipal bond funds.

According to a new report, advisors may be missing out if they are reluctant to target next-gen investors. Research from Fidelity Institutional Insights found that investors under the age of 40 are inheriting more than $540 billion in the United States every year, 30% of the total wealth transferred. In addition, data from Cerulli Associates shows that the demographic will control three-quarters of $84 trillion in inherited wealth by 2045. The Fidelity report is a wake-up call for advisors that shy away from young clients due to higher debt, fewer assets, and generational differences. Fidelity Investment’s vice president of practice management and consulting, Anand Sekhar, said the revenue-weighted age of the average Fidelity advisor’s client is 65. According to Sekhar that creates a huge problem for advisors in the future. With older client rosters, advisors could see widespread drawdowns and not enough clients to take their place. Making matters worse is that only 13% of advisors are engaging with clients’ children and grandchildren, which puts billions currently managed at risk. Fidelity’s data suggests that if firms can reduce the revenue-weighted age of clients by just seven years, from 69 to 62, it can increase a firm’s growth tenfold. The research also suggests that establishing those relationships now could produce greater returns as investors under 40 are investing earlier than their parents and are willing to pay for advice.

Finsum:With the average revenue age of clients nearing 70, many firms could see soon see massive withdrawals with no clients waiting in the wings, which is why advisors need to start engaging with clients’ children and grandchildren now.