Displaying items by tag: index funds

(New York)

Fidelity is doubling down on its recent move to offer completely free index funds with no investment minimums. The money manager will launch a pair of new free index funds, one focused on large caps, and the other on the “extended market” (or small and midcaps), in late September. The new free funds are part of Fidelity’s strategy to compete vigorously on pricing to bring in new clients, and then try to earn money from them spending on other services.

FINSUM: Fidelity is almost using these funds as loss leaders in order to drum up other business. This may work for them because they have such a large product suite, but for less diversified managers, it poses a serious challenge.

(New York)

For several years Vanguard was seen as the champion of low-cost investing. It led the revolution in ever-lower cost ETFs. However, just recently, it seems to have fallen on hard times as it is facing challenges on multiple fronts. In particular, it is suffering at the hands of Fidelity, which is undercutting it on fund pricing. Fidelity’s recent no-fee index funds mean they are even cheaper than Vanguard’s lowest cost funds. The second, and perhaps even more worrisome challenge, relates to investment minimums, which Fidelity did away with on its cheapest funds. Vanguard’s minimums are now starting to look old-fashioned by comparison.

FINSUM: The best way for Vanguard to compete would be to merge some of the classes of their products. However, doing so would require a big revenue haircut, all of which means the company has some tough choices to make.

(New York)

Fidelity made a huge splash in the asset and wealth management world’ about a month ago when it launched the markets first completely free indexed mutual funds, and with no investment minimums. The move sparked big share price losses for other asset managers and seemed to spell doom for the industry. But how have the funds actually performed so far? The answer is well. The pair of funds have taken in almost $1 bn of client money in just a month, which is considered a solid success.

FINSUM: We think this is a good showing for Fidelity, but one of the other issues the zero fee funds have brought up is that there are many other terms of index funds that investors need to pay close attention to. Not just price.