Fidelity, T. Rowe Win Preliminary OK on New Stock-Picking ETFs
November 14 2019 - 7:21PM
Dow Jones News
By Justin Baer and Dawn Lim
Fidelity Investments and T. Rowe Price Group Inc. were among the
firms that won preliminary regulatory approval to offer a new
flavor of exchange-traded fund aimed at reviving investors'
interest in stock-picking managers.
The U.S. Securities and Exchange Commission on Thursday gave a
green light to the firms' plans, along with those submitted by
Natixis Investment Managers and Blue Tractor Group, to create ETFs
that choose securities without exposing the managers' trading
tactics.
The approvals granted Thursday were years in the making, and
come months after upstart Precidian Investments secured a go-ahead
for its own active ETF model.
The firms will still need to work through various details before
launching their funds, which also require further regulatory
approval. A priority is making sure the ETFs can trade
efficiently.
Thursday's approvals bring Fidelity, T. Rowe and the others a
step closer to launching funds they believe will help win back
investors who have moved money into low-cost ETFs that track
popular stock indexes.
Clients have been flocking to these cheaper, passively managed
products, which are less profitable for money-management firms, and
losing faith in more expensive managers that try to outperform the
market by handpicking investments. In a sign of the threat stock
pickers face, assets in actively managed U.S. equity funds were
surpassed by those in funds track broad U.S. stock indexes in
August, Morningstar data show.
Investors' interest in index funds surged in the past decade
with the emergence of the ETF, which trades on exchanges like
stocks but is cheaper, more transparent and more tax-advantageous
than mutual funds.
Active managers like to safeguard their stock-picking strategies
so they aren't mimicked by competitors, and have for years
hesitated to launch standard ETFs because they require more
disclosure than a typical mutual fund. The new ETF models are each
structured in a way that seeks to protect managers' trades.
"Given how money has moved away from traditional stock-picking
funds to ETFs, the ability to offer nontransparent, proven
strategies could be significant," said Todd Rosenbluth, head of
ETFs and mutual-fund research at research firm CFRA. It could
"alleviate some of the pressure traditional asset managers are
facing," he said.
"We are excited to receive notice of approval for our innovative
strategy, which we believe is the best approach to active equity
ETFs for our clients," Greg Friedman, Fidelity's head of ETF
management and strategy, said in a statement.
T. Rowe Price and Natixis aim to launch ETFs that will invest in
U.S. stocks.
"We believe this is a significant milestone that will lead to
opening a new avenue for our business," Tim Coyne, T. Rowe's head
of ETFs, said in a statement.
Precidian has licensed its ETF structure to industry
heavyweights such as Legg Mason Inc. and JPMorgan Chase & Co.,
and Precidian executives expect the first funds based on its model
to launch within the next several months.
Blue Tractor has a similar business plan and will now start
signing up its own licensees, said Simon Goulet, the firm's
co-founder.
(END) Dow Jones Newswires
November 14, 2019 19:06 ET (00:06 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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