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?

Pharos Financial Group - Hedge Funds

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• Pharos fund portfolio.
• Whitepaper on Pharos Fund. The White paper explains how the pharos fund manager makes decisions.
• Every letter to all investors for 2008, from the Pharos Fund and Gas Fund.
• Excel spreadsheet of every Pharos funds performance. So far, 2008 has a negative return on every fund.
• Excel spreadsheet breakdown of Sector allocations for the pharos fund.
• Excel spreadsheet breakdown of Sector allocations for the Gas fund. Pretty self-explanatory, the fund invests in options and futures in oil and natural gas.
• Article about how there will be an increasing demand for natural gas.
• Excel spreadsheet of Pharos small cap fund. The small cap fund uses Russia’s building economy and uses illiquid shares to make a profit.
• Daily market comment and performance of all three funds. The Political Environment is fragile, which will create volatility in the market overall, which is good for each hedge fund.
• Article about how all Pharos funds are down. The MSCI Russia Index is down 32.4% due to “a reversal of fortune from the market's earlier outperformance.”
• The Georgia conflict severely hurt the Russian economy because investors pulled out more than $7 billion. Russian may not be allowed to host the next Olympics and the U.S. is restricting Visas for Russians.
• Pharos said that the Russian economy is stable, but foreign investors insecurity will create short term-volatility.
• Name of this article pretty much sums it up- “Pharos, TPG to acquire American Beacon Advisors for $480m.”
• Interview with Peter Halloran. Eastern European (Russian affiliated) countries are rapidly growing faster than other developing nations.
• Article about the government planning to increase domestic gas prices by 25-40 per cent, over the next three years.
• A blog post that has a about positive outlook for every Pharos fund, for the month of June.
• Article about how hurricane Gustav may increase gas to $5 a gallon. This may effect pharos gas fund.

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