In simpler terms, Fidelity posits this system will facilitate the arbitrage process needed for the funds to trade at market prices close to their net asset value.
“I don't have a date for when they're going to be approved,” Friedman says. “But we are excited about that progress” regarding talks with regulators.
It’s likely these active ETFs, if and when they get approved, would mirror existing strategies in Fidelity’s active mutual funds. That raises the question of whether these products would cannibalize comparable strategies in the mutual funds.
“We've got a good case study in that we have 11 passive sector ETFs which compliment our sector strategy where we have over $80 billion in the sector mutual funds,” Friedman says. “Both mutual funds and ETFs have grown over the last five years. We haven't seen cannibalization.”
Ultimately, he notes, Fidelity sees its ETF strategy as part of its “wrapper agnostic” model.
“ETFs fit really well in some places, but there are also places where mutual funds work better, so we're not either/or ETFs or mutual funds—the answer is both,” Friedman says.