Fidelity International is expanding its Smart Beta exchanged-traded fund (ETF) range with two new income-focused funds.
The company claims the product will offer investors an income solution with diverse regional exposures.
The Fidelity Europe Quality Income Ucits ETF and the Fidelity Emerging Markets Quality Income Ucits ETF will seek exposure to high-quality, dividend-paying companies.
The strategy works by tracking a portfolio of stocks that have historically shown good profitability, strong cashflows and consistent dividends, with the objective of delivering a yield in excess of the broader market.
The two new funds will track Fidelity-branded indices, a move that is in line with its existing quality income-branded ETFs.
The products will start trading on 1 November on the London Stock Exchange and Deutsche Börse.
Fidelity has also launched new share classes for its existing US and Global income products, offering three currencies: sterling, dollar and euro. The new Fidelity Europe Quality Income Ucits ETF will also be available in the three currencies.
The double fund launch follows from the global and US products, which launched in April.
The latest launch follows an overhaul of Fidelity’s fee structure in its active management side. Last month the company said its active funds would move to a variable fee structure. The annual management charge will be cut across all its active funds, while performance fees will be introduced but “refunded” if the funds deliver performance that is the same, or worse, than the returns achieved by the benchmark.
Brian Conroy, president of Fidelity International, said the new charging structure should result in “significantly lower” fees for investors.
Provider view:
Nick King, head of ETFs at Fidelity International, said: “Smart beta strategies are growing in popularity, as clients seek systematic exposure to an investment strategy or theme. By combining Fidelity’s active investment expertise with the systematic aspects of passive investing, we believe we can offer a truly differentiated product aligned to client outcomes, such as income.
“After the successful launch of our first smart beta funds in April, we can now offer a full range of income ETFs, including currency hedged share classes.”
Adviser view:
Scott Gallacher (pictured), director at Rowley Turton, said: “Smart beta funds seem to be in vogue, combining the lower cost of trackers with more targeted investment of active selection.
“The principle behind passives or trackers is that almost no ‘skill’ is required and an existing index is replicated or modelled by a fund, hence the lower cost.
“In the case of these smart beta funds, it seems Fidelity has created its own indices. These indices give an element of active selection, as someone at Fidelity has to decide their terms. These new funds might find favour with those seeking low-cost income funds.”
Charges:
There is an Ongoing Charges Figure (OCF) of 0.3 per cent for the Europe fund and 0.5 per cent for the Emerging Markets fund.
Verdict:
It could be attractive to IFAs who remain sceptical about pure passive strategies, trusting Fidelity’s ability to create a rules-based index. They are fairly low cost compared with active income funds. Emerging market income, however, remains a niche area.
