BOSTON — Fidelity Investments is trimming fees at its largest index mutual funds and making some of its lowest-cost options accessible to a larger number of fund shareholders, including those with as little as $2,500 to invest.
The moves announced Tuesday follow recent investment fee cuts involving mutual funds or exchange-traded funds at rivals such as Vanguard, BlackRock and Charles Schwab.
Fidelity’s moves affect mutual funds holding about $100 billion in assets, out of about $1.6 billion that the Boston-based company manages overall.
These involve index funds, low-cost options that seek to match performance of a basket of stocks or bonds. Fees are unchanged at Fidelity’s hundreds of actively managed funds, which seek to beat the market. Investment management fees are typically lower at index funds because investors aren’t paying managers to pick investments.
Fidelity is lowering the amount of money a fund shareholder must invest to quality for lower-cost shares at 22 funds, including 14 in its Spartan family of stock and bond index funds.
Starting Jan. 1, the investment minimum for qualifying to invest in Investor Class shares will be reduced to $2,500 from the previous $10,000. Individual investors in a lower-cost share class called Fidelity Advantage will need to meet a $10,000 threshhold, down from the previous minimum of $100,000.
Qualifying for a lower-cost share class can mean small reductions in the expenses charged, and long-term investors can earn significant savings.
For example, starting next month, investors will pay an expense ratio of 0.05 percent — or a fee of $5 a year for every $10,000 invested — in the Advantage shares of Fidelity’s largest index fund, the $49 billion Spartan 500 Index Fund. That’s down from the previous 0.06 percent, a level that already made Spartan 500 Index one of the industry’s lowest-cost stock funds.
Those who can’t meet the $10,000 minimum for that fund’s Advantage shares pay 0.095 percent for Investor class shares, a fee level that Fidelity isn’t changing. That’s nearly twice as high as the new fee level for Advantage shares.
Overall, Fidelity is cutting expense ratios — the amount needed to cover a fund’s operations costs — at eight Spartan index funds, in varying amounts. While the reduction is modest for the Spartan 500 Index Advantage shares, the cuts are larger at some other funds. For example, expenses for Investor shares of the Spartan Small Cap Index Fund will fall to 0.30 percent from 0.38 percent, while that fund’s Advantage shares will charge 0.16 percent, down from 0.24 percent.
The moves are aimed at “providing workplace retirement plan sponsors and individual investors access to a wide-array of high-quality index funds at some of the most competitive pricing in the industry,” said JS Wynant, an executive vice president at Fidelity.
The other Spartan funds where fees are being cut at some or all of the share classes are Total Market Index; Emerging Markets Index; Global ex-U.S. Index; Mid-Cap Index; Real Estate Index; and U.S. Bond Index.
The funds where investment minimums are being reduced include all eight of those Spartan funds, as well as six other Spartan funds: Extended Markets Index; International Index; Inflation-Protected Index; Intermediate Treasury Index; Long-Term Treasury Index; and Short-Term Treasury Index.
Eight other funds with new investment minimums don’t carry the Spartan name: Four-in-One Index; Nasdaq Composite Index; International Enhanced Index; Large Cap Core Enhanced Index; Large Cap Growth Enhanced Index; Large Cap Value Enhanced Index; Mid Cap Enhanced Index; and Small Cap Enhanced Index.
For existing shareholders in Spartan funds, Fidelity next month will automatically convert qualifying Investor Class shares into the lower-cost Advantage shares of the same fund.
Investors have become more cost-conscious in recent years, showing a preference for index mutual funds, as well as index-oriented ETFs. Investors deposited a net $246 billion into index funds and other index products investing in stocks from 2008 through September 2012, according to Morningstar Inc. During that period, withdrawals exceeded deposits in managed stock funds and products, with net withdrawals of nearly $700 billion.
That trend has been a major impetus for recent fee-cutting moves by Vanguard, BlackRock, Schwab and others. Many of the cuts have come at ETFs. While index mutual funds have long been the first choice for anyone looking to invest on the cheap, they’re now being undercut by the lowest-cost ETFs. For example, the lowest-cost stock ETF from Schwab now charges 0.04 percent.
A distinct feature is that ETFs can be traded throughout the day like stocks, unlike mutual funds that are priced only at the close of daily trading. Also, with ETFs, average investors pay the same expenses as institutional investors, unlike with mutual funds.comments powered by Disqus