Fidelity Investments will start serving up self-selected fractional shares reconstituted as diversified portfolios to the retail market in the US.
In its latest ‘direct indexing’ product update, investors in the new Fidelity Solo FidFolios can create a portfolio of up to 50 US stocks, allocating a minimum US$1 to each share.
According to a release, the new service “simplifies the process of building and managing a custom portfolio by allowing for rebalancing, purchases, and redemptions of an entire portfolio of stocks with just one click”.
Due to hit the market over the “next few weeks”, the DIY retail release follows the launch of a Fidelity-managed version of the direct indexing product offering access to 13 ‘thematic’ US share portfolios. The managed Fidelity direct indexing product carries a US$5,000 minimum investment.
Investors in the new solo platform can also tap into the Fidelity-managed options or create a “customised portfolio”, according to Robert Mascialino, Fidelity retail brokerage business head.
“Now more than ever, investors want the peace of mind of trading, monitoring, and rebalancing custom stock portfolios in a simple way,” Mascialino said in a release.
He said DIY investors would be able to “align [portfolios] to a specific theme or individual values” with the new low-cost service. After a 90-day free-trial period, investors would pay US$4.99 per month to maintain Solo FidFolio accounts with no other fees.
Direct indexing is one of the latest technology-enabled investment crazes sweeping the US in particular with the potential to supplant some existing managed fund structures.
Fidelity said in the release: “The introduction of mutual funds was a game changer for the average investor, allowing them to gain access to financial markets once only the wealthy had access to. Then ETFs came along and helped with diversification and potential tax efficiencies with intraday trading. What’s next? Direct indexing.”
The direct indexing process essentially replicates all the asset ownership, securities trading and administration duties carried out by traditional managed funds while giving end investors more flexibility in portfolio construction. Fractional share ownership, where investors hold rights to a portion of underlying securities, has burgeoned over the last couple of years as new technology allowed brokerage houses to split stocks up into infinitesimally small pieces, repacking the shards for retail investors.
Fidelity, along with Interactive Brokers, has been among the leaders in pushing the fractional share trend, profiting from trading and asset servicing activities.
NZ investors have also latched on to fractional share ownership via US stock-trading services offered by platforms including Hatch, Sharesies, Stake and BlackBull Markets.