Home Adviser Fund Update Fidelity Wages Fee War Published July 15, 2016 Fidelity Keeps Pressure on in Fee Wars On July 1, Fidelity launched the latest volley in its ongoing fee wars with Vanguard, cutting costs on share classes of 27 of its index funds and sector 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.. Sixteen mutual funds and 11 ETFs will be discounted in the second part of a two-pronged incursion on Vanguard’s turf. In a number of cases, the cuts represent a sizable cost reduction, and make Fidelity’s index fund and sector 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. lineup the cheapest in the game, a clear challenge to its rival fund giant from Pennsylvania. At the start of the summer, Fidelity announced that it would be making these 16 index mutual funds available to all investors, not just those with accounts there. Formerly known as Spartan funds, these index options first had their names changed, and now have seen their fees go down. Fidelity has long prided itself—with good reason—as a leader in the actively managed space, but has also expanded its index and ETF presence to respond to increased competition, most notably in its decade-long attempt to horn in on Vanguard’s passive investment business, which we’ve covered extensively. We think the move is a win for investors and Fidelity. In the index fund and ETF arenas, where fees are often the only factor differentiating one firm’s funds from another’s—Fidelity’s lower costs are a boon for individual investors. The move also may give retirement plan sponsors, operating under the U.S. Department of Labor’s new fiduciary rule, a strong incentive to pick Fidelity’s index funds over similar choices from other fund families charging higher fees. Fidelity’s Fee Cuts Fund Share Class Ticker Symbol Former Expense Ratio Current Expense Ratio 500 Index Investor FUSEX 0.095% 0.090% Total Market Index Investor FSTMX 0.100% 0.090% Extended Market Index Inst. Prem. FSMAX 0.060% 0.045% Large Cap Growth Index Investor FSUIX 0.220% 0.210% Large Cap Value Index Investor FLCDX 0.220% 0.210% Mid Cap Index Investor FSCLX 0.220% 0.190% Small Cap Index Investor FSSPX 0.230% 0.190% International Index Investor FSIIX 0.200% 0.190% Global ex U.S. Index Investor FSGUX 0.190% 0.180% Total International Index Investor FTIGX 0.190% 0.180% Emerging Markets Index Investor FPEMX 0.310% 0.300% U.S. 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. Index Investor FBIDX 0.200% 0.150% Short-Term Treasury Bond Index Investor FSBIX 0.200% 0.190% Intermed.-Treasury Bond Index Investor FIBIX 0.200% 0.190% Long-Term Treasury Bond Index Investor FLBIX 0.200% 0.190% Inflation-Protected Bond Index Investor FSIQX 0.200% 0.190% MSCI Consumer Disc. Index ETF FDIS 0.120% 0.084% MSCI Consumer Staples Index ETF FSTA 0.120% 0.084% MSCI Energy Index ETF FENY 0.120% 0.084% MSCI Financials Index ETF FNCL 0.120% 0.084% MSCI Health Care Index ETF FHLC 0.120% 0.084% MSCI Industrials Index ETF FIDU 0.120% 0.084% MSCI Info. Technology Index ETF FTEC 0.120% 0.084% MSCI Materials Index ETF FMAT 0.120% 0.084% MSCI Telecom. Svcs. Index ETF FCOM 0.120% 0.084% MSCI Utilities Index ETF FUTY 0.120% 0.084% MSCI Real Estate Index ETF FREL 0.120% 0.084% Note: Most premium ($10,000 minimum) and institutional shares of these index funds also saw fee reductions. Source: Fidelity. Vanguard Launches “Select Index Funds” At the end of June, Vanguard launched five ultra-low-expense, ultra-high-minimum versions of its index funds in a new “Institutional Select” share class. With minimums ranging from $3–$5 billion (that’s right, billion, with a “b”) these shares are far out of reach of all but the largest institutional investors. We would not be surprised to see those numbers quickly grow, since it will only take a handful of shareholders investing at the minimum to significantly move the needle, but as of June 30, they had only accrued about $7.3 billion. Vanguard’s Institutional Select Fund Lineup Fund Ticker Symbol Expense Ratio Minimum Investment (billions) 500 Index VFFSX 0.010% $5.0 Extended Market Index VSEMX 0.020% $3.0 Total Bond Index VTBSX 0.010% $3.0 Total International StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. Index VTISX 0.045% $3.0 Total Stock Market Index VSTSX 0.010% $5.0 Note: Assets as of 7/11/16. Source: Vanguard. We wouldn’t consider this to be an entrant into the fee wars with Fidelity given the massive minimum investments required, but investors at large companies may see them show up in their 401(k) or pension funds. Now we will have to wait to see if funds with fees this low will ever be accessible to the individual investor. Based on some of Fidelity’s cuts, highlighted above, it may be a matter of “when,” not “if.” 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. 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