Fidelity, BlackRock's iShares teaming up

By Mark Jewell
AP Business Writer

BOSTON (AP) — Fidelity Investments is ramping up its small presence in the rapidly growing exchange-traded fund business by expanding a 3-year-old partnership with BlackRock Inc.’s iShares unit, the largest ETF provider.

BlackRock, in turn, will be able to sell its iShares ETFs to a much broader range of investors, including Fidelity customers and their industry-leading 18.5 million brokerage accounts. BlackRock doesn’t have anything to rival that client base.

Boston-based Fidelity and New York-based BlackRock announced the partnership on Wednesday. The companies agreed in early 2010 to cooperate on a smaller scale in a three-year deal that expired.

Under that agreement, Fidelity offered its brokerage clients commission-free online trades on 30 iShares ETFs. The commission-free total expands to 65 under the new pact. With a total $250 billion in assets, those ETFs invest in U.S. and foreign stocks and bonds, as well as commodities.

Fidelity also will create new options for its customers to build investment portfolios using iShares ETFs. And BlackRock agreed to help Fidelity develop new funds that passively track narrow segments of the market, such as stocks of companies in specific industries.

Fidelity hasn’t been a significant player in directly offering ETFs, instead serving as a distributor offering its clients ETFs managed by other firms like iShares.

Similar to low-cost index mutual funds, ETFs track segments of the market and try to match a benchmark stock or bond index rather than beat it. But ETF shares can be traded throughout the day like stocks. That makes it possible to lock in a preferred price without waiting for a closing price. Mutual funds are priced only at the close of daily trading.

Another appeal of ETFs has been a recent round of reductions in investment management fees, including cuts announced last fall by iShares and Charles Schwab. Index mutual funds have long been the first choice for anyone looking to invest on the cheap, but they’re now being undercut by the lowest-cost ETFs.

ETF assets have doubled over the past three years, reaching $1.3 trillion, and they continue to grow at a much faster pace than mutual funds. However, for every dollar in an ETF, investors have stashed $7 in mutual funds. ETF assets are projected to nearly double to almost $3.5 trillion by 2016, according to a recent study by Cerulli Associates.