Fidelity says it’s not interested in expanding more into ETFs.

Fidelity Investments already has its toe into the exchange-traded funds market. Apparently, that’s about as far as it’s willing to go, at least for now.

The president of the Boston-based mutual funds giant, known for its star manager system, let it be known last week that he was seeking a replacement. In the course of giving interviews to papers and news wires, the executive — Rodger Lawson — also made it clear that the firm was never interested in ETF’s dominant player, Barclays Global Investors, when it was put on the market.

That led Sue Asci of InvestmentNews to ask Fidelity representative directly if the company wasn’t going to pursue expanding its ETF presence. “We have no current plans to expand proprietary ETFs,” Fidelity spokesman Vin Loporchio told the magazine. (You can read the full story here.)

In 2003, the firm introduced its lone ETF, the Fidelity Nasdaq Composite Index ETF (NasdaqGM: ONEQ). With the explosive growth of ETFs and last year’s record outflows from mutual funds, Fidelity has become increasingly tied to smaller ETF sponsors such as WisdomTree Investments.

Earlier this month, IndexUniverse.com reported that sources familiar with the situation had placed a team of Fidelity executives meeting with Wall Street investment bankers and key brokerage houses exploring the possibility of making a full-scale move into ETFs. (See story here.)

At the time, IU.com also talked to knowledgeable industry veterans who questioned whether Fidelity could overcome the expected objections from some of its star managers about the increased transparency issues presented by ETFs. It seemed unlikely, according to our sources, that Fidelity would be interested in a strictly passive, index-based family of ETFs.

Competitive obstacles were also a big reason why many analysts questioned how much of a force active ETFs would prove to be in the market. The partnership between Grail Advisors and American Beacon earlier this year touted the creation of the industry’s first qualitative active mutual fund (i.e., one that feels and acts like a traditional fundamental-based mutual fund).

But it utilizes a team management approach, something that would go against the Fidelity style (although there are certainly some exceptions to that rule).

Did transparency kill the deal with Fidelity? Other issues also appeared to loom on the horizon, but the current regulatory environment and competitive landscape would also seem to figure into the equation.

At the time of our last report, we also heard that if Fidelity moved forward it would probably have to push for advancement of so-called “black-box” formulas. Those methodologies essentially ask the Securities and Exchange Commission to relax guidelines on daily reporting of holdings to let managers provide a sample portfolio — not the whole enchilada.

So far, we haven’t heard of any advancement in the SEC’s green-lighting of such practices. So the next big issue facing Fidelity might come down to whether its decision is permanent. Or, if regulators wind-up approving some sort of actively managed process that allows for partial non-disclosure, will Fidelity reconsider its decision to stick with traditional mutual funds?

Last 5 posts by IndexUniverse Staff

• Rethinking Leverage - November 24th, 2009
• Will UNL Beat UNG? - November 19th, 2009
• A Real Hedge Fund ETF? - November 17th, 2009
• ProShares’ Positive Tax Surprise? - November 17th, 2009
• Better Than Cash? - November 17th, 2009