Fidelity Investments is ramping up its small presence in the rapidly growing exchange-traded fund business by expanding a three-year-old partnership with BlackRock Inc.’s iShares unit, the largest ETF provider.
BlackRock, in turn, will be able to sell its iShares ETFs to a much broader range of U.S. investors, including Fidelity customers and their industry-leading 18.5 million brokerage accounts. BlackRock doesn’t have anything to rival that client base.
Boston-based Fidelity and New York-based BlackRock announced the partnership on Wednesday. The companies agreed in early 2010 to co-operate on a smaller scale in a three-year deal that has expired.
Fidelity hasn’t been a significant player in directly offering ETFs, instead serving as a distributor offering its clients ETFs managed by other firms like iShares.
ETF assets have doubled over the past three years, reaching $1.3 trillion, and they continue to grow at a much faster pace than mutual funds. However, for every dollar in an ETF, investors have stashed $7 in mutual funds. ETF assets are projected to nearly double to almost $3.5 trillion by 2016, according to a recent study by Cerulli Associates.
But Fidelity, the second-largest manager of mutual funds behind Vanguard, has been late to venture into ETFs. In December, the privately held company filed a regulatory application to launch its first actively managed ETFs that seek to outperform the market, rather than match an index. Actively managed ETFs are a small but growing segment of the overall ETF market.
The new agreement will last longer than the earlier three-year deal, although the companies aren’t disclosing how long it will last.