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Fidelity Investments will become the first asset manager to convert an index mutual fund into an ETF, according to industry analysts.
The firm’s $178mn Municipal Bond Index Fund board intends to refashion the product into an ETF in April, according to a regulatory filing.
However, the conversion of its index fund would be the first time a US fund manager has filed to refashion such a product into an ETF, according to Morningstar analyst Dan Sotiroff.
Fidelity confirmed that it would be the first time the company had filed to convert an index fund into an ETF.
This article was previously published by Ignites, a title owned by the FT Group.
Fidelity cited a few reasons for the conversion of its index fund, which included lower expenses, trading flexibility and increased portfolio holding transparency, according to the filing.
The fund would start using a new proprietary index once it was converted into an ETF, dropping its current Bloomberg Municipal Bond Index, the filing said.
The possibility of generating more inflows into the fund was another potential reason for the conversion, according to Sotiroff.
“The fund isn’t tiny, but it’s not really substantially large at the same time. So, this is an attempt to make it a more attractive investment,” he said.
Sotiroff noted that the fund’s changing of its index would also technically mean that its investing strategy was being tweaked from a broad market municipal bond index into a more systematic bond index.
“It’s sort of like a strategic beta index where it’s going to be taking intentional, persistent bets to improve performance, but still sort of packaged in a rules-based index sort of framework,” he said.
The index fund recorded $22.7mn in net inflows for the year ended November 30, according to data from Morningstar Direct.
It was launched in July 2019.
*Ignites is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignites.com.
