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?