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As expected, the theme of mutual fund-to-ETF conversions remains alive and well in 2025 with Fidelity again adding to the list of funds undergoing such transformations.
In what could amount to some good timing, the Boston-based asset manager announced on Monday that two of its municipal bond funds that were born as open-end mutual funds are now exchange traded funds. Welcome to the world of ETFs Fidelity Municipal Bond Opportunities ETF (FMUB) and Fidelity Systematic Municipal Bond Index ETF (FMUN).
For advisors and investors that became familiar with the mutual fund editions of those ETFs, some of the goods is that Fidelity isn’t making management-level alterations with the newly converted ETFs. That’s a playbook deployed by other issuers when moving mutual funds to the ETF wrapper and it’s a smart one because end users like consistency.
“The new ETFs will generally maintain the same investment strategies as the previous mutual funds. The portfolio management team for FMUB includes experienced co-managers Cormac Cullen, Michael Maka, and Elizah McLaughlin, and for FMUN includes experienced co-managers Brandon Bettencourt and Mark Lande,” according to a Fidelity statement.
Maybe Good Timing for Fidelity Conversions
Fidelity has previously converted mutual funds to ETFs so it’s not surprising that added to the list with the aforementioned moves.
Likewise, converted ETFs aren’t the same as organically born new ETFs. As the issuer points out, FMUB and FMUN add nearly $230 million in assets to its fixed income ETF roster. Throw in Fidelity’s distribution advantages and it’s clear FMUB and FMUN aren’t the run-of-the-mill rookie ETFs that might struggle to gain traction among advisors and investors.
That doesn’t diminish the point that these could prove to be well-timed conversions on Fidelity’s part. With markets reeling amid U.S. deployment trade tariffs, clients expect shelter-from-the-storm – a bell answered by municipal bonds.
Even if the U.S. economy contracts in significant fashion, many of the states and cities that are the largest issuers of municipal debt have budget reserves and/or the ability to raise taxes to make-up for revenue shortfalls and the possibility of federal funding cuts.
New Fidelity ETFs Add to Active ETF Space
The conversions of FMUB and FMUN to the ETF wrapper are notable for another reason: those moves further expand the realm of actively managed ETFs – a space where the growth has largely been led by fixed income products.
According to Fidelity’s Portfolio Construction Insights, the number of studied portfolios that hold at least one bond ETF is about two-thirds following a 6% year-over-year increase in 2024. In other words, FMUB and FMUN debuted at a time of growth for active fixed income strategies in the ETF wrapper.
“One notable trend is the rise in active ETF allocations, as the vehicle may be an attractive option for advisors looking for tax efficiencies, low costs, and intraday liquidity. In 2022, only 13% of advisors had allocations to active ETFs. By the end of 2024, this number surged to 40%, with an average allocation of around 21%. This increase is most notable in the Fixed Income asset class,” according to Fidelity.
With the conversions, Fidelity now has 78 ETFs, active and passive, addressing various asset classes.