Home Adviser Fund Update Fidelity and Vanguard Cut Fees Published December 30, 2016 Fidelity Gets Rid of Short-Term Trading Fees In mid-December, Fidelity announced that it would do away with short-term trading fees on 75 of its mutual funds. The move is Fidelity’s means of addressing the changing marketplace and the low costs (and subsequent popularity) of exchange-traded fundsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index.. Traders have increasingly relied on ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index. rather than actively managed mutual funds to gain short-term exposure to specific asset classes and sectors. Fidelity attributed its decision to drop this fee category because the popularity of ETFs (which don’t charge sales fees) means that excessive short-term trading of its funds is much less of a concern. Commonly known as “redemption fees,” these charges are imposed on mutual fund shareholders who sell shares within a certain period of buying them. They seek to deter short-term trading, which can make a fund manager’s asset base less predictable, compromising their ability to buy and sell when they see fit while adding the need to hold or be able to raise cash quickly to meet significant withdrawals. The now-defunct redemption fees varied by fund. For example, prior to the change, Fidelity Growth Strategies imposed a 1.5% fee on shares held for fewer than 90 days. International Discovery charged 1.0% for the sale of shares held for 30 days or less. “This is a unique and fairly aggressive move on their part,” Adviser Investments Chief Investment Officer Jim Lowell told The Wall Street Journal. Lowell also told the Journal that the timing of the change could make some Fidelity funds more eye-catching for financial advisers and retail investors at the end of the year who are looking to buy and sell shares in mutual funds for tax-harvesting purposes. Fees were lifted on 14 U.S. stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. funds, 13 international stock funds, 27 sector funds, 20 fixed-income funds and one asset-allocation fund. Popular Fidelity funds that no longer carry redemption fees include Mid-Cap StockA financial instrument giving the holder a proportion of the ownership and earnings of a company., Total Market Index, Growth Strategies, International Index, Global Balanced, Overseas and Worldwide, as well as a number of the firm’s Select sector funds. “We’re comfortable removing redemption fees on those funds because of the nature of their investment universes and the broad spectrum of ETFs available for investors with short term investment horizonsThe length of time that an investor expects to hold an asset.,” said Fidelity spokeswoman Sophie Launay. “We now have other effective tools in place, and those tools have become more sophisticated since we initially applied redemption fees in 1989 to combat market timing and other excessive short-term trading strategies.” The funds will still be subject to rules enacted in 2004 that prohibit excessive trading within a three-month timeframe. As for the 78 Fidelity funds that will maintain short-term redemption fees, 64 of them will see their rules amended so that retirement-plan investors will get the same fee waiver treatment that previously was only available to participants in plans run by Fidelity. While we typically buy and hold funds for the long term at Adviser Investments, there may be times when an investor needs to reverse course on a fund purchase (such as the tax-swap example CIO Jim Lowell cited above), and not having to contend with short-term fees on the way gives greater flexibility and choice to those carrying out such investment strategies. Vanguard Lowers Fund Expenses Last week, Vanguard lowered expense ratios on a number of equityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. and fixed-income mutual funds and ETFs, a fairly regular occurrence at the fund titan, but one shareholders should always welcome. As a reminder, an expense ratio tells shareholders how much they’re paying to support the firm’s annual operating costs for a particular fund or ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index.. The expense ratio is calculated by dividing annual operating expenses by the average dollar value of the fund or ETF’s assets under management. Vanguard has built its reputation on being a leader in low-cost mutual funds. Its relatively reliable fee reductions are a positive for investors who benefit from the firm’s at-cost corporate structure, the enormous economies of scale at work with more than $3 trillion in assets under management, and Vanguard’s dedication to outcompete other fund companies on the fee front. The attention to costs is significant; in 2015, the last full year for which data is available, Vanguard’s average mutual fund expense ratio of 0.18% was 82% lower than the industry average. With expense ratios already so low, there’s not room to come down too dramatically at once (the moves this time around saw expenses reduced by one to three basis points, or 0.01% to 0.03%), but any additional amount shareholders can save and keep invested and compounding over time is an unalloyed positive for Vanguard investors. Expense Ratio Changes Effective December 22, 2016 Fund Share Class Ticker Former Expense Ratio Current Expense Ratio Explorer Value Investor VEVFX 0.65% 0.63% Extended Duration Treasury ETF EDV 0.10% 0.07% Extended Duration Treasury Index Institutional VEDTX 0.08% 0.06% FTSE Social Index Institutional VFTNX 0.15% 0.12% FTSE Social Index Investor VFTSX 0.25% 0.22% Intermed.-Term Corporate BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. ETF VCIT 0.10% 0.07% Intermed.-Term Corporate Bond Index Admiral VICSX 0.10% 0.07% Intermed.-Term Corporate Bond Index Institutional VICBX 0.07% 0.05% Intermed.-Term Gov’t Bond ETF VGIT 0.10% 0.07% Intermed.-Term Gov’t Bond Index Admiral VSIGX 0.10% 0.07% Intermed.-Term Gov’t Bond Index Institutional VIIGX 0.07% 0.05% International Growth Admiral VWILX 0.34% 0.33% International Growth Investor VWIGX 0.47% 0.46% Long-Term Corporate Bond ETF VCLT 0.10% 0.07% Long-Term Corporate Bond Index Admiral VLTCX 0.10% 0.07% Long-Term Corporate Bond Index Institutional VLCIX 0.07% 0.05% Long-Term Gov’t Bond Index Admiral VLGSX 0.10% 0.07% Long-Term Gov’t Bond Index Institutional VLGIX 0.07% 0.05% Long-Term Gov’t Bond ETF VGLT 0.10% 0.07% Mega Cap ETF MGC 0.09% 0.07% Mega Cap Growth ETF MGK 0.09% 0.07% Mega Cap Growth Index Institutional VMGAX 0.08% 0.06% Mega Cap Value ETF MGV 0.09% 0.07% Mortgage-Backed Securities ETF VMBS 0.10% 0.07% Mortgage-Backed Securities Index Admiral VMBSX 0.10% 0.07% Mortgage-Backed Securities Index Institutional VMBIX 0.07% 0.05% Short-Term Corporate Bond ETF VCSH 0.10% 0.07% Short-Term Corporate Bond Index Admiral VSCSX 0.10% 0.07% Short-Term Corporate Bond Index Institutional VSTBX 0.07% 0.05% Short-Term Gov’t Bond Index Institutional VSBIX 0.07% 0.05% Short-Term Gov’t Bond Index Admiral VSBSX 0.10% 0.07% Short-Term Government Bond ETF VGSH 0.10% 0.07% U.S. Growth Admiral VWUAX 0.33% 0.32% U.S. Growth Investor VWUSX 0.47% 0.46% Source: Vanguard. At Adviser Investments, we’re always happy to see investing come with fewer strings and costs attached, even if our philosophy is to buy funds for the long-term rather than making frequent trades. As the fund industry evolves, Fidelity and Vanguard innovate and the landscape becomes more competitive, investors are keeping more and more of what they earn, a trend we can safely expect to continue in 2017 and beyond. That’s something we can all raise a glass to. Happy New Year from all of us at Adviser Investments, and here’s to a safe, sound and prosperous 2017 for you and your portfolio! About Adviser Investments Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. Our minimum account size is $350,000. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868. 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