Fidelity is bringing one of the investment industry’s most talked-about structures to its own lineup.

The asset-management giant is making its first ETF share classes available this week, adding exchange-traded versions to three existing mutual fund strategies: the Fidelity Intermediate Municipal Income Fund, the Fidelity Real Estate Income Fund and the Fidelity Short-Term Bond Fund. The new ETFs (trading under the tickers FIMU, FREI and FSTB, respectively) will be listed on the Nasdaq and share the same underlying portfolios, investment objectives, management and performance histories as their mutual fund counterparts. The move places Fidelity among a growing group of firms embracing the ETF share-class structure after regulatory changes opened the door to broader adoption; just last week, Northern Trust filed for its own ETF share classes.

“We are at an inflection point in the ETF industry, with exemptive relief providing the opportunity to offer additional product choice for investors,” said Greg Friedman, Fidelity’s head of ETFs. “The long-term historical performance of these strategies paired with the experienced portfolio management teams make them a strong fit to adopt Fidelity’s first ETF share classes.”

Wrapper Wars

For decades, Vanguard held a patent on the model, which allows mutual funds and ETFs to operate as different share classes of the same portfolio. When the patent expired and the Securities and Exchange Commission began approving applications from other firms, asset managers rushed to capitalize on the structure’s potential benefits. Fidelity’s launch includes three income-focused strategies:

• FIMU, a municipal-bond strategy, will carry an estimated net expense ratio of 0.30%.
• FREI, focused on real estate debt and income-producing securities, will charge 0.57%.
• FSTB, a short-term bond strategy, will have a net expense ratio of 0.20%.

According to the firm, existing shareholders on its platform will be able to convert mutual fund shares into the new ETF classes as a non-taxable event, a feature long associated with Vanguard’s structure.

Farewell, Mutual Funds? The launch comes as ETFs continue to pull assets from traditional mutual funds. Jeff Sardinha, head of ETF solutions for North America at State Street, told ETF Upside in April that he expects mutual-fund-to-ETF conversions to contribute $50 billion to $60 billion in ETF inflows this year. Once mutual-fund-to-ETF tax-free exchanges are “automated along the entire value chain,” we should see larger asset migration, he added.

There’s a new mayor in Roku City.

On Monday, Fox Corp. announced an agreement to acquire streaming platform Roku for $22 billion, uniting two titans in the free ad-supported streaming TV (FAST) space. Not everyone is loving the news, however: Shares of Fox tumbled 15%.

Tubi or Not Tubi

Fox hasn’t been a full-fledged participant in the Streaming Wars, opting against a premium subscription service to rival the likes of Netflix and Hulu, though it does have smaller over-the-top offerings for news and sports (both of which print money as linear cable TV assets). It also has Tubi, the FAST service it acquired for $400 million in 2020; the unit began turning a profit in the second half of last year.

Roku, while largely known for its connected TV boxes, is a major FAST player in its own right via The Roku Channel. Folding The Roku Channel into the Fox empire would create a media conglomerate capable of competing for eyeballs, and ad dollars, with the best of them:

• Added together, Fox and The Roku Channel accounted for just over 10.2% of all TV viewership in March, according to Nielsen’s The Gauge Index. That would outpace all providers except Disney (10.5%) and YouTube (13.2%), though the soon-to-be-married Paramount and Warner Bros. Discovery would together garner about 14%.
• On the ad side, Roku generated $2.3 billion in revenue last year, up 27%, while Tubi pulled in $1.1 billion, up 19%.

“Just [Tubi and The Roku Channel] alone, that is the second-biggest [connected TV] company by ad revenue in the US, basically second to YouTube,” Moe Chughtai, global vice president of strategy and partnerships at adtech platform MiQ, told The Daily Upside. “It would be a bigger ad business than Netflix, than Prime, than Disney, than Paramount and Warner Bros. Discovery.”

FAST and Furious: Still, a $22 billion acquisition is a big pill to swallow for a company valued at about the same amount. Fox said Monday it plans to pay with cash and new debt, citing a $12 billion loan. “They’ve been talking about setting up the balance sheet for M&A for a couple of quarters now,” Third Bridge sector analyst John Conca told The Daily Upside. “I would have thought something smaller, personally.”

If you’re selling, they’re buying.

Mergers and acquisitions are a cornerstone in plenty of RIAs’ growth strategies, and the buying mindset is becoming inescapable. More than half of RIAs, some 54%, are currently seeking an acquisition, according to a Cerulli report. That share has increased as a wave of advisor retirements, coupled with succession challenges, continues to create new M&A opportunities now worth more than $2.5 trillion. “Internal succession is pretty hard for RIAs, especially when you get into billions of dollars in AUM,” said Stephen Caruso, Cerulli associate director. “Valuations are so high right now. Oftentimes you look for an acquirer who has the resources and career pathing for your team, so your team is taken care of as part of this deal-making process.”

Big Fish, Massive Pond

Like wealth itself, assets in the advisory industry remain highly concentrated. Just 2% of RIAs, those with more than $5 billion in AUM, control more than half of all RIA assets. “The large continue to get larger,” Caruso told Advisor Upside, citing firms like Hightower, Corient and Wealth Enhancement Group. During the next decade, Cerulli projects more than 26,000 acquisitions in the RIA industry. The biggest firms with the deepest pockets will have the most opportunities, but Caruso noted mergers up and down the AUM spectrum. “That’s something we see playing out in the long term,” he said. “Just because M&A is becoming more active in this space, doesn’t mean that there isn’t room for smaller deals as well.”

The report found that between 2022 and 2024:

• Cresset purchased six RIAs with average total assets of $7.35 billion
• Corient acquired 20 firms averaging $1.4 billion in assets.
• Wealth Enhancement purchased 47 firms with about $400 million in assets apiece.
• Wealth Partners Capital Group bought 85 RIAs averaging roughly $245 million in assets.

Niche to See You. Meanwhile, smaller RIAs are realizing they have to become more specialized or compete differently, Caruso said. “Smaller firms have the benefit of affecting faster asset growth or asset acquisition, but it still relates to how you compete in your local area,” he said. “Your average RIA on Main Street is competing against the Edward Jones advisor five blocks down, and they’re competing against the other small RIA three streets over.”