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Fidelity: Embracing ETFs

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Forced by the investor preference for passive instruments like exchange-traded funds (ETFs) driven by ETFs’ fee and performance advantages, regulatory pressures, and the rise of robo-advisors, the renowned active manager Fidelity embraced ETFs by introducing smart beta ETFs. As the new chairman, Abigail Johnson had to consider the challenges ahead including incompatibility with Fidelity’s investment philosophy and fierce industry competition.

The case is based on several concepts including ETFs, mutual funds, index funds, factor asset pricing models, financial innovation, active vs. passive investment management, and efficient market hypothesis, aiming to help students understand ETFs, especially smart beta ETFs, as well as Fidelity and other ETF providers. The case can be used to facilitate teaching in the area of Finance & Investments.

Learning Objective:

The key learning objectives of the case are:

  • To understand the development of ETFs as a financial innovation and how they are different from mutual funds and closed-end funds.

  • To understand the development of smart beta ETFs as a financial innovation, their link with factor asset pricing models, and how they deviate from the traditional ETF products.

  • To understand the investment philosophy of Fidelity and why it is in conflict with passive instruments like ETFs.

  • To explore the opportunities and challenges associated with Fidelity embracing ETFs.

  • To provide students with a basic understanding of the ETF industry and major providers around the globe and in the US.

  • To explore the active vs. passive investing debate.

Year of Publication: 2019
Ref. No.: 18/619C
Discipline: Finance & Investments
Industry: Banks & Diversified Financials
Country: United States of America
Languages: English
Pages of Text: 12