Fidelity Investments made some cost-cutting moves recently to try and keep their index fund products competitive (full press release). This comes at the same time that their actively-managed equity funds are seeing large amount of withdrawals, per WSJ:
Investors pulled a net $35.3 billion from equity funds at the country’s second-largest mutual-fund company in 2012, according to Fidelity’s annual report released Friday. Of that total, the Boston-based company’s actively-managed stock funds – an essential component of its business – saw outflows of $24.4 billion during the year. That’s despite the strong performance of the funds, which collectively beat 74% of their peers last year, compared with 53% in 2011, according to Fidelity.
(Also noteworthy: Fidelity filed with the SEC in December 2011 to roll out their own line-up of index-tracking stock and bond ETFs, although I haven’t heard much since. In December 2012, Fidelity filed to start actively-managed ETFs as well.)
Reduced investment minimums. As of December 2012, Fidelity reduced the investment minimums on 22 equity and bond funds, including the 14 Spartan index funds listed below. The Investor Class investment minimum was lowered from $10,000 to $2,500, while the Fidelity Advantage® Class was lowered from $100,000 to $10,000.
Spartan 500 Index Fund
Spartan Extended Market Index Fund
Spartan International Index Fund
Spartan Total Market Index Fund
Spartan Emerging Markets Index Fund
Spartan Global ex U.S. Index Fund
Spartan Mid Cap Index Fund
Spartan Real Estate Index Fund
Spartan Small Cap Index Fund
Spartan Inflation Protected Index Fund
Spartan Intermediate Treasury Index Fund
Spartan Long-Term Treasury Index Fund
Spartan Short-Term Treasury Index Fund
Spartan U.S. Bond Index Fund
This is a pretty big move to bring in more retail investors, becoming more in line with Vanguard’s Investor and Admiral Class shares. As with Vanguard, share class conversions should occur automatically based on your investment amount, and the conversion is a tax-free event.
Lower expense ratios. As of January 2013, Fidelity also cut the overall expense ratios for certain share classes of 8 Spartan index funds. Below is a list of the affected funds and their new expense ratios for Investor/Advantage classes as of 1/1/13.
Spartan 500 Index Fund (0.095% / 0.05%)
Spartan Total Market Index Fund (0.10% / 0.06%)
Spartan Emerging Markets Index Fund (0.31% / 0.20%)
Spartan Global ex U.S. Index Fund (0.22% / 0.18%)
Spartan Mid Cap Index Fund (0.24% / 0.10%)
Spartan Real Estate Index Fund (0.24% / 0.10%)
Spartan Small Cap Index Fund (0.30% / 0.16%)
Spartan U.S. Bond Index Fund (0.22% / 0.10%)
The combination of lower expense ratios and the ability for many investors to switch to lower-cost Fidelity Advantage shares should be welcome news to many Fidelity customers. This was also good publicity move, as I didn’t even know a lot of these newer Spartan funds existed.
As an example, I am considering switching to the Spartan TIPS fund (FSIYX) as I currently use the iShares Barclays TIPS ETF (TIP) which is on their commission-free ETF list but has a 0.20% expense ratio instead of 0.10%. They have similar holdings (6 vs 8 year duration), although the Fido fund has only been around since May 2012 and has a tiny $50 million in assets vs over $20 billion with iShares. I also hold these in a tax-deferred Solo 401k account at Fidelity, so I don’t have to worry about capital gains. The fee cut wars continue.
By Jonathan Ping | Investing | 2/25/13, 11:18pm