Fidelity Investments next year will cut fees on some of its
biggest index mutual funds, and broaden access to some of its
cheapest funds, in a gesture that appears linked to a broader fee
war in the world of index
involving companies such as Vanguard, Charles Schwab and
Fidelity's move, which doesn't affect any of its actively
managed mutual funds, lowers investment minimums on 22 funds,
including 14 in its Spartan family of stock and bond index funds,
Fidelity said in a press release. It lowered expense ratios on
eight of those Spartan funds, making them among the cheapest ETFs
canvassing the same pockets of the investment universe. The company
has $100 billion in index assets and total assets of $1.6
"Index funds are pretty much a commodity," Sophie Launay,
spokeswoman at Boston-based Fidelity said today in an interview.
"We already offer some of the lowest-priced index funds, and this
is the latest example of that."
The minimum investment on "Investor Class" shares of the 14
Spartan mutual funds will drop to $2,500 from $10,000. Fidelity
said it will automatically convert qualifying Investor Class shares
into lower-cost Fidelity Advantage Class shares of the same
fund in January 2013-hence the fact a lot more investors of
relatively modest means will soon have access to some of the
cheapest funds available, period.
As an example, Advantage Class shares of the Fidelity Spartan
500 Index Fund will cost 0.05 percent-or $5 for every $10,000
invested-compared with 0.06 percent currently. In comparison, the
Schwab U.S. Broad Market ETF (NYSEArca:SCHB) costs 0.04 percent,
and the Vanguard S&P 500 ETF (NYSEArca:VOO) and the iShares
Core S&P 500 ETF (NYSEArca:IVV) cost 0.05 percent and 0.07
Fidelity, with one exception, does not yet have a presence in
the exchange-traded fund industry, so this week's move doesn't
immediately apply to the world of ETFs. But to the extent ETFs are
index funds competing for the same investor assets, it's hard not
to see the connection between what Fidelity is doing and the
broader price competition in the ETF industry.
The lower expense ratios on the eight funds, which are effective
Jan. 1, are as follows:
- Spartan 500 Index Fund-Advantage shares to drop, as noted, to
5 basis points from 6
- Spartan Total Market Index Fund-Advantage shares to drop to 6
basis points from 7 basis points
- Spartan Emerging Markets Index Fund-Advantage shares to drop
to 20 basis points from 22 basis points
- Spartan Global ex U.S. Index Fund-Advantage Class shares will
remain at 18 basis points, but Investor Class shares will drop to
22 basis points from 24
- Spartan Mid Cap Index Fund-Advantage shares to drop to 10
basis points from 14
- Spartan Real Estate Index Fund-Advantage shares to drop to 10
basis points from 13
- Spartan Small Cap Index Fund-Advantage shares to drop to 16
basis points from 24
- Spartan U.S. Bond Index Fund-Advantage shares to drop to 10
basis points from 11
A Bold Move Into ETFs-Finally
It does have one fund, the Fidelity Nasdaq Composite Tracking
Stock ETF (NasdaqGM:ONEQ), which it rolled out in September 2003
and which has about $175 million in assets, but is now laying the
regulatory groundwork for what looks likely to be a massive push
That launch was arguably quite timely, as rival fund
companies-including the now-No. 3 ETF company, Vanguard-were barely
yet in the business of marketing ETFs themselves.
But because Fidelity never followed ONEQ's launch with rollouts
of any other strategies, the company is now widely perceived as
having missed out on the early phase of ETF development.
However, in the past year Fidelity has filed for broad
regulatory permission to offer a variety of index as well as active
ETFs and has also hired Tony Rochte, a reputable ETF industry
insider, to run its ETF operation.
Moreover, it appears possible from the language in these
regulatory filings that it could be seeking to market its new ETFs
as a separate share class of its mutual funds-something Vanguard
already does with patent protection.
It's not at all clear how it will all pan out, but the ETF
industry is watching Fidelity closely.
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