Fidelity and BlackRock Expand Ties With First ETF-Built Product

Apr 24, 2014 11:16 am ET

April 24 (Bloomberg) -- BlackRock Inc. and Fidelity Investments, two of the world’s largest asset managers, are expanding their partnership in exchange-traded funds with their first actively-managed product built using multiple ETFs.

Fidelity will begin selling the BlackRock Diversified Income Portfolio on May 1, the Boston-based firm said today in a statement. Managed by Fidelity, it will be comprised primarily of ETFs and available only to the firm’s retail brokerage clients.

The product “uses a tactical, go-anywhere approach that seeks to provide exposure to attractive income opportunities across asset classes, sectors and regions around the world,” the company said in the statement.

Fidelity, long known for its actively managed stock mutual funds, was a late mover into the ETF business. It opened a line- up of industry-focused products in October and has gradually expanded an agreement to sell BlackRock ETFs without trading commissions. BlackRock, the world’s biggest ETF provider, has sought to expand its investor base through Fidelity, whose online brokerage unit with 14.9 million client accounts is the largest in the U.S.

Investment funds that allocate money across ETFs grew 40 percent in the U.S. in 2013 to $96 billion, according to fund research firm Morningstar Inc. The largest, offered by Good Harbor Financial LLC in Chicago, had $10.4 billion in assets as of Dec. 31.

While New York-based BlackRock will make investment recommendations, a Fidelity team led by Brian Enyeart will make the final allocation decisions for the new product, Robert Beauregard, a Fidelity spokesman, said today in a telephone interview.

Minimum Investment

The team will typically put 70 percent of the portfolio in ETFs and also use mutual funds, real estate investment trusts and other products. While the managers won’t use BlackRock ETFs exclusively, those will be given a preference, Beauregard said.

The minimum investment for the product is $200,000, Beauregard said. Investors will pay 1.1 percent of assets annually in fees at that level. Fees drop to as low as .55 percent for customers investing more than $3 million.