Fidelity to Convert Muni Mutual Funds to ETFs
Fidelity Investments has slated two municipal bond mutual funds for conversion to ETFs, reflecting an ongoing trend of assets migrating away from mutual funds and toward exchange-traded funds.
The $176 million Fidelity Municipal Bond Index mutual fund (FMBIX) and the $63 million Fidelity Municipal Core Plus Bond mutual fund (FMBAX) are expected to be converted into ETFs early next year, according to filings with the Securities and Exchange Commission.
“Converting to an ETF makes all the sense in the world for the right mutual fund and strategy, particularly for smaller funds with limited or no 401(k) plan assets,” said Nate Geraci, president of The ETF Store in Overland Park, Kans.
“It’s basically a no-brainer for those types of funds given investor demand for the ETF wrapper,” he added. “I don’t expect this trend of mutual-fund-to-ETF conversions to slow down anytime soon.”
To date, Fidelity has completed 12 mutual-fund-to-ETF conversions, and this is the third round of conversions for the Boston-based asset manager that has 71 ETFs that combine for nearly $77 billion.
“We continue to look for opportunities to grow our lineup and help our customers meet their distinct financial goals as their preferences continue to evolve,” said Greg Friedman, Fidelity’s head of ETF management and strategy in an emailed response.
“These conversions can deliver new opportunities and value for our existing shareholders, while also expanding our solutions to help meet demand for access to innovative strategies in an ETF wrapper,” he added.
$6B Into Municipal Bond Funds in August
According to the latest asset-flow research from Morningstar, investors plowed nearly $6 billion into municipal-bond funds in August, marking the first time they cleared $5 billion of inflows in consecutive months in three years.
“Fidelity has experience converting mutual funds to ETFs; they converted a batch of more concentrated sector-equity portfolios in June 2023, then did the same for their enhanced equity products last November,” said Ryan Jackson, senior manager research analyst at Morningstar.
“Conversions make sense in the municipal-bond space because it’s a fairly underdeveloped corner of the ETF market,” he added. “ETFs represented just 15% of muni-bond assets at the end of August, compared to 28% for taxable-bond funds. Munis certainly have room to grow in the ETF structure.”
In terms of the larger trend favoring ETFs over mutual funds, Morningstar’s research shows investors added nearly $70 billion worth of net flows into ETFs in August, while pulling more than $43 billion out of mutual funds.
Through the first eight months of the year, ETFs took in nearly $590 billion, while mutual funds saw $217 billion head out the door.
