Psst – iShares for Sale; Ned, You Listening?
March 17, 2009 by John Schloegel
Filed under Business News, Commentary, ETFs
Barclays PLC, the London-based financial conglomerate, is seeking a buyer for its San Francisco-based iShares unit. iShares, an ETF juggernaut, has approximately $300 Billion under management. This division is officially a unit of Baclays Global Investors, a shop with over $1.5 Trillion under management. iShares is a prized asset to its parent, and the fact that the shaky parent is willing to sell only confirms how bad things are in the financial services arena. Ok, so that’s the background. What’s the big deal?
The San Francisco Chronicle quotes a source as saying potential buyers are: JP Morgan, Goldman Sachs, a large mutual fund company, or a competing exchange-traded fund provider. Our advice: privately-held Fidelity Investments should swoop in and pick up iShares immediately. They can instantly gain a stronghold on such an important (and growing) product area to which they currently do not have much exposure.
Fidelity, as one of the largest U.S. mutual fund companies, needs an ETF offering if they seek to continue to be one of the premier investment firms in the country. Right now they are slowly losing their grip on asset management expertise and what was once a super-sized set of mutual funds. They were a pioneer in sector-based mutual funds, catering to an informed crowd of investors seeking to buy and sell sector-specific securities. At one time, customers could trade sectors on an hour by hour basis with NAVs set periodically during the day. Fidelity has slowly moved away from that model; upfront sales loads and hourly pricing were replaced with redemption fees and 30 day holding periods. They went from catering to active and informed traders to a firm preventing investors from actively managing portfolios.
Somehow they’ve completely missed the ETF revolution. Yes, they have an ETF – the Fidelity Nasdaq Composite Index ETF (ONEQ), but it barely has any assets and has little volume. One has to wonder what discussions have taken place in the esteemed halls of Fidelity over the years as they watched the ETF revolution from the sidelines. Well, they’ve been presented the opportunity of a lifetime to get back fully in the game and to reclaim their place at the top echelon of financial service providers in one lightning-quick move. Barclay’s troubles are Fidelity’s gains. Are they ready to pounce?
I am another one who believes that this makes the utmost sense for Fidelity. When Fidelity removed hourly pricing on the Select funds and added their 31-day holding requirement to every fund except money market funds, I thought it was in preparation for rolling out their own line of ETFs, but that never happened.
Fidelity is probably concerned that having an ETF product line will cannibalize their exisitng mutual fund lineup, and ETFs command a lower management fee.
Guess what, their mutual funds are going to lose assets to ETFs anyway – so isn’t it better that the assets move to Fidelity owned ETFs instead of someone else’s (like Vanguard. State Street, Invesco, and others).
Besides, if they keep the iShares name, which they should since it is the most recognized brand in the business, it may take a few years for many of their exisitng mutual fund shareholders to realize that they are owned by Fidelity.
This is one of those deals that will come back to haunt them in later years if they let it slip away.