Fido’s money hoover wins again

Earlier this year, Alphaville wrote about how State Street’s $380bn flagship (and industry-pioneering) ETF might be overtaken in assets by competitors from BlackRock and Vanguard. But it already has been by a different type of rival.

Take a look at this:

Strictly speaking, the Fidelity 500 Index Fund is not an ETF like State Street Global Advisors’ SPDR S&P 500 ETF Trust (or BlackRock’s iShares Core S&P 500 ETF or Vanguard’s S&P 500 ETF).

SDPR — often just known as “Spider” — is also comfortably the most heavily traded equity security in the world, and has a huge web of derivatives based on it. So this isn’t quite an apples-to-apples comparison, at least when it comes to the value of the franchise.

But it’s pretty remarkable how fast Fidelity’s S&P 500 index fund has grown recently. A decade ago it managed just $57bn, and five years ago it was $146bn. At the end of April it managed $388.6bn, compared to SPDR’s $385.8bn.

(NB, the Vanguard ETF is just a share class of its Vanguard 500 index fund, which combined is easily the biggest of them all, with $821bn of assets under management. No one is ever going to catch up with that.)

There’s no real secret as to why Fidelity has now leapfrogged the main S&P 500 offering of its Boston rival: cost — charging just 2 basis points compared to BlackRock and Vanguard’s 3 bps, and SPDR’s 9.5 bps — married with Fido’s vast distribution.

It’s often easy to just think of Fidelity as an asset manager. It’s their oldest and biggest business, after all. But the reality is that it’s a sprawling, multi-faceted machine designed to constantly hoover up money from people, companies and organisations in the world’s biggest economy and funnel it into investment products.

Fidelity’s latest report said that it had 38mn individual retail accounts, 42mn workplace accounts, and $11.1tn of client assets on its various platforms — $4.2tn of which is in actual Fidelity funds. Even last year, when markets were pretty dicey across the board, Fidelity soaked up another $466bn of net inflows.

That Fidelity’s single biggest fund is now an index fund will tickle anyone who remembers how viciously the company lambasted passive investing in its early days, and how grudgingly it eventually started dabbling with them (initially under a separate brand to avoid tarnishing the Fidelity brand with tawdry passive funds).

The artist formerly known as the Spartan 500 index fund is now almost four times bigger than Willian Danoff’s Contrafund and more than fifteen times larger than the once-imperious Magellan Fund. What would Ned Johnson make of that?

Further reading:

— Fidelity’s index fund business Geode hits $1tn in assets
— Fido (hearts) ETFs
— How Fidelity’s Ned Johnson defied the curse of the boss’s son