Fidelity to launch more high-quality income ETFs

The stocks included in the indices these ETFs will track are weighted according to profitability, strong cash flows and dividends, and designed to deliver higher yields than mainstream indices. This is similar to the criteria for the indices tracked by Fidelity US Quality Income UCITS ETF (FUSA) and Fidelity Global Quality Income UCITS ETF (FGQI), which launched earlier this year.

Fidelity Europe Quality Income UCITS ETF will have an ongoing charge of 0.3 per cent and Fidelity Emerging Markets Quality Income UCITS ETF will cost 0.5 per cent.

Over the past three months, Fidelity Global Quality Income has returned 3.7 per cent against 1.1 per cent for mainstream global index MSCI World. Fidelity US Quality Income has returned 3.6 per cent compared with 3.8 per cent for the S&P 500 index.

Smart beta ETFs focused on income, offering high-quality income stocks at a low price tag, have increased in popularity in recent years. Lyxor, iShares and WisdomTree are among the passive fund providers offering such ETFs.

But a number of companies focused on active funds, including Fidelity, are also bringing passive funds to the market.

Franklin Templeton launched Franklin LibertyQ Emerging Market UCITS ETF (FLXE) last month, its fifth ETF. This tracks an in-house index designed to offer exposure to higher-quality emerging market stocks with a lower volatility than the mainstream index. The index it tracks weights stocks using factors including quality, value, momentum and low volatility.

Franklin's range also includes two quality equity income ETFs - Franklin LibertyQ Global Dividend UCITS ETF (FLXX) and Franklin LibertyQ European Dividend UCITS ETF (FLXD). 

Meanwhile, Franklin LibertyQ Global Equity SRI UCITS ETF (FLXG) tracks environmentally and socially responsible shares, and Franklin LibertyQ US Equity UCITS ETF (FLXU) is a quality-focused ETF which tracks mid- and large-cap US stocks.

JP Morgan Asset Management plans to list two actively managed ETFs in London later this year, which will make it the second provider to offer such products in the UK. These ETFs will incorporate elements of human decision-making like an active fund or investment trust, rather than just following quantitative rules or algorithms.  

JPM Equity Long-Short UCITS ETF and JPM Managed Futures UCITS ETF will mimic hedge funds by including long and short positions, in contrast to most smart beta ETFs which track indices made up of long positions. JPM Equity Long-Short UCITS ETF will track equities and JPM Managed Futures UCITS ETF will track equities, fixed income, currency and commodities.

Assets invested in active ETFs listed globally increased by 30.5 per cent in the first half of 2017, according to ETF research group ETFGI. But, at present, First Trust FactorFX UCITS ETF (FTFX) which launched in August is the only actively managed ETF listed in the UK. It holds currency pairs in developing and emerging markets, and generates returns by exploiting the differences in yield between them. It has an ongoing charge of 0.75 per cent.

Top ten stocks in Fidelity Global Quality Income UCITS ETF (%)

Source: Morningstar, as at 25.10.17