Fidelity Investments fires another salvo in the fee wars

Mutual fund company announces fee cuts to 14 of its stock and bond index funds, claiming they have less expensive comparable funds than archrival Vanguard

Jul 31, 2017 @ 2:44 pm

By John Waggoner

+ Zoom

The great fee war rolls on: Fidelity Investments Monday announced fee cuts to 14 of its stock and bond index funds, saying that they now have cheaper comparable funds than archrival Vanguard.

The average expenses across Fidelity's stock and bond index fund line-up, which take effect Aug. 1, will decrease to 9.9 basis points (0.099%), down from 11.0 basis points. The Boston-based fund company estimates that investors will save current shareholders $18 million annually.

Fidelity, which was the dominant fund company in the 1980s and 1990s because of its high-powered actively managed funds, has seen its most growth in its index products in the past few years. Its largest stock fund is the $119.5 billion Fidelity 500 Index Investor (FUSEX), which has seen a net inflow of $4.7 billion the past 12 months. Fidelity Contrafund (FCNTX), its second-largest fund, has seen an outflow of $13.3 billion the same period, despite the actively managed fund's 22.7% gain.

Fidelity dropped the expense ratio of its Fidelity 500 Index investor fund's premium share class to 0.035% from 0.045%, for example, and its institutional share class to 0.030% from 0.035%.

Fidelity's investor class shares remained at 0.09%. The Vanguard 500 Index fund's investor share class charges 0.14% in annual expenses.

The cuts spread across Fidelty's bond and sector index funds. For example, those in the investor class of its U.S. Bond Index fund (FBIDX), will see their expense ratio fall to 0.14% from 0.15%. Those in the investor class of the Fidelity Emerging Markets Index fund (FPEMX) will save one basis point as the fund's expense ratio falls to 0.29% from 0.30%.

Fidelity also reduced the minimum initial investment requirement in its Institutional Premium share class to $200 million from $100 million. Its Premium share class minimum remains at $10,000, and institutional share class premium stays at $5 million.

"It's a continuation of 'The Vanguard Effect,'" said Vanguard spokesman John Woerth. "Vanguard continues to lower the cost of investing — whether for Vanguard clients or other investors."

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