(Bloomberg) -- Fidelity Investments is expanding its reach in the competitive world of systematic strategies for the masses, with the launch of five new active ETFs.
The Boston-based money manager has been boosting its quantitative-investing chops in recent years as traditional stock picking loses ground to index tracking.
Two of the new funds invest in stocks based on factors — quant metrics that attempt to predict outperformance — without straying too far from the benchmark. The other three, in its Fundamental series, combine human stock picks with computer-built portfolios.
The new launches are part of Fidelity’s growing effort in the booming ETF market. It now oversees $89 billion in these products across various investing styles, putting it 12th among all issuers, data compiled by Bloomberg Intelligence show.
Humans are still the best at finding great long-term investments, but turning those into portfolios — from trading to managing risk — is an inherently quantitative process, according to Neil Constable, who heads the firm’s quant research and investments arm.
“It’s all about division of labor,” he wrote in an email. “Fidelity’s Fundamental ETFs are designed around a ‘use the right tool for the job’ approach.”
Each of the ETFs is built by identifying a set of Fidelity managers and calculating a “conviction score” based on how much each of their holdings deviates from the benchmark. This process bears some resemblance to alpha capture, an investment strategy from the hedge fund world based on extracting the best calls from bank analysts, fund managers and the like.
Fidelity already has four products which use this approach. The Fidelity Fundamental Large Cap Core ETF, the biggest among them with $614 million, has returned 38% in the past year, compared with 32% for the S&P 500.
Constable’s quant unit now oversees some 400 employees, compared with about 60 when it first began.
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