With greater dispersion in markets expected in the coming years, Nick King, Head of ETFs at Fidelity, explains why ‘smart' ETF strategies will be most valued going forward
Fidelity has a strong heritage of active investing, and its move into the ETF sector a few years ago was questioned by some.
However, by combining its active investment expertise with the systematic aspects of index investing, the group is now providing a range of differentiated solutions aligned to the outcomes its clients are looking for.
Nick King is the man tasked with leading the group's foray into smart beta ETFs, and he has been working on building the range with a team in London and Hong Kong since he joined the firm in 2016.
Over the past three years, King has successfully helped Fidelity build a range of specialist ETF strategies that draws on the group's active expertise and heritage.
King believes the rapid growth of the ETF market in recent years has been driven by a number of factors, including the growth of index investing generally but also the convenience that the wrapper provides. With the group's clients increasingly using a combination of active, passive and systematic products to build their portfolios, Fidelity believes in offering them with the flexibility to choose from a range of best in class investment tools whatever solution they're looking for, explains King.
King says the range will be built out gradually and will seek to launch strategies that are clearly relevant for its clients, rather than putting out "as many products as possible and seeing what sticks".
Accordingly, Fidelity's first ETF range screens stocks to identify ‘good quality' companies based on their profitability and cash flows. Among the highest quality companies, Fidelity then selects the highest yielding securities to invest in. King explains: "The Quality Income ETFs are based on indices which have been developed by Fidelity's research team. Fundamental active insights inform the factor definitions used to identify quality companies. Risk management principles lead to index rules that minimise unintended sector, size and country risks."
A number of existing income ETF strategies have large weightings to sectors such as utilities which pay higher dividends, and avoid sectors such as information technology, which have not historically paid such high dividends. A key point of Fidelity's income ETF range is to ensure that it has a sector allocation which is more representative of the broader market.
"In other income ETF strategies, sector positioning becomes the main driver of the returns, rather than the income strategy that is being sought."
to read the full interview with Nick King and more in the ETF Evolution magazine, here: