Fidelity Investments is about to introduce a set of ten sector ETFs that will compete with similar products from State Street (Select Sector SPDR), BlackRock (iShares) and Vanguard (sector-specific ETFs).

NYSE - Upcoming Fidelity Sector ETFs

The new ETFs will undoubtedly complement the current offering of 65 iShares ETFs that can be traded commission-free in Fidelity accounts if held for more than 30 days. The expense ratio of these ETFs will be 0.12%, lower than the average of 0.18% for SPDRs, 0.45% for iShares and 0.14% for most of Vanguard ETFs.

However, in addition to reported expense ratios, investors should also take into account trading costs, including bid/ask spreads and premium/discount to the net asset value (NAV) of each ETFs. With the highest trading volumes, SPDR ETFs are leaders in that respect.

The following table summarizes the existing U.S. sector ETFs from major issuers:

Sector SPDR iShares Vanguard
Consumer Discretionary XLY IYC VCR
Consumer Staples XLP IYK VDC
Energy XLE IYE VDE
Financials XLF IYF VFH
Health Care XLV IYH VHT
Industrials XLI IYJ VIS
Information Technology XLK IYW VGT
Materials XLB IYM VAW
Telecommunication Services XTL* IYZ VOX
Utilities XLU IDU VPU

*The SPDR® S&P® Telecom ETF (XTL) is not part of the original Sector SPDRs; its expense ratio is 0.35%.
The new Fidelity sector ETFs will track MSCI IMI sector indices. In contrast, the nine SPDR ETFs track S&P sector indices that collectively represent all stocks in the S&P 500® index. iShares ETFs track the Dow Jones U.S. sector indices. As of February 2013, Vanguard ETFs track MSCI 25/50 indices that cap each fund’s exposure to stocks dominant in a given sector.

From Alpholio™’s perspective, these sector ETFs should benefit investors by expanding the pool of securities that can be used to build substitution portfolios for actively-managed mutual funds in a cost-effective manner (low expense ratio, commission-free trading).

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