A loyalty program for mutual funds? Fidelity tries something new

Fidelity’s new mutual funds aim for disruption, a role more frequently associated with ETFs

A group of multinational corporations loyalty card programs


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You might call it the “ETF-ication of everything.” Mutual fund managers are launching special products that allow them to use the exchange-traded fund structure but keep their portfolios hidden. Others are exploring outright conversions of their funds to ETFs. And brokerages are becoming more comfortable with buzzy marketing, lower fees and fractional share trading.

But a new offering from Fidelity Investments inhabits a gray areas amid the market shift, and suggests that there’s more life left in the mutual fund space than ETF-watchers might realize.

Fidelity on Tuesday announced the launch of eight “thematic” funds, ranging from disruptive automation to water sustainability, most of which have a pricing discount that rewards investors for leaving their money in the fund. The management fee for the funds will start at 1.00%, decrease to 0.75% after a year, and decrease again, to 0.50%, after two years.

See:Will mutual funds get a second wind… as ETFs?

“Loyalty programs” are familiar in many consumer experiences, from video rentals to pedicures to hotel stays, but a new notion for funds, said Todd Rosenbluth, head of ETF and mutual fund research for CFRA. In a perfect world, a mutual fund that keeps end investors content enough to leave money in it is a “win-win,” he said.

And the model explored in Fidelity’s new offering — long-term thematic investing across sectors, tied to a theme — isn’t new to mutual funds, but it’s an area where ETFs led the charge. There are a handful of mutual funds with such themes, but 125 thematic ETFs with about $25 billion assets under management, Rosenbluth reckons.

Fidelity is likely hoping to attract investors who would otherwise buy into thematic ETFs, rather than those interested in mutual funds, Rosenbluth said. The company is “blurring all the lines,” he added.

Related:Is it time for ETFs to get active?

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