Todd Rosenbluth of S&P Capital IQ examines Fidelity's Select funds in light of rumors that Fidelity may be launching a set of ETFs, reports Teresa Rivas from Barron's.

Rosenbluth acknowledged that these funds have had a robust track record, but past performance does not indicate future returns.

Rosenbluth examines three of the Select funds, one called the Fidelity Select Biotechnology Portfolio. It has an expense ratio of 83 bps, a modest rate compared to its peers. But Rosenbluth notes that this is higher than SPDR S&P Biotech ETF, which is pegged at 35 bps. If Fidelity eyes an ETF version of this fund, it should offer an expense fee near or below the rule-based offerings.

Fidelity Select Health Care Portfolio, with an expense ratio of 80 bps, costs much more than the Health Care Select Sector SPDR Fund, which carges only 18 bps. If an ETF version of this fund will be launched, it could result in the new ETF getting market shares from smaller related ETFs, such as PowerShares Dynamic Health Care Sector Portfolio.

The last ETF in Rosenbluth's notes is the Fidelity Select Technology Portfolio. This fund also charges an expense ratio lower than the average for its peers. It has a strong top-quartile three-year record. However, the fee charged by this fund is still higher than the Vanguard Information Technology Index Fund with a fee of 19 bps. This fund's entry into the ETF space could hurt other diversified, small technology ETFs.

Rosenbluth concludes that any ETFs that Fidelity may launch has the potential to do well, with a large portion of the success coming from expense ratios. 

Edited by: HFD


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