mutual fund giant Vanguard has led the way in cutting
costs for retail investors — until last week.
it’s Fidelity’s turn to take on Vanguard — and
Fidelity just went to zero fees first.
of Friday, Fidelity launched two mutual funds with no
fees. Fidelity ZERO Total Market Index Fund (FZROX) and
Fidelity ZERO International Index Fund (FZILX) are now
available with no fees to individual retail investors
who purchase shares through a Fidelity brokerage
account. The Boston investment giant also slashed fees
on some existing index-based stock and bond funds,
according to a news release.
stunt? Yes, but competitors such as the robo-adviser
Betterment said these fee wars will continue raging.
has been a consistent march toward lower fees between
fund providers, and Vanguard has always been
competitive," Betterment senior portfolio
researcher Adam Grealish said in response to questions
about the Fidelity zero-fee salvo. "I expect that
challenge Vanguard may face? Proceeds from Vanguard’s
stock lending are plowed back into their funds, to the
benefit of shareholders, Grealish added. But other fund
companies use proceeds from stock lending as a revenue
source. Revenue from stock lending allows fund companies
to lower expense ratios because they are able to offset
advantage of the fee charged by Vanguard is that what
you see is what you get. Revenue has to come from
somewhere, and Vanguard puts it on its price tag.
Broadly, this means that investors have to consider more
aspects of a fund to understand its full cost,"
Grealish explained. He called the concept similar to an
airline lowering its fare, then charging for a carry-on
course, fees aren’t everything. Investors should
consider both expense ratio as well as performance vs.
the benchmark index the fund seeks to track.
Fidelity’s new mutual funds are not using a brand-name
index like the S&P 500 or Dow Jones, and that helps
reduce costs, since fund companies may have to pay
would expect moving away from name-brand indexes to be a
trend that continues," he added.
Betterment have any plans to introduce no-fee products?
a Boston-based firm, is a fierce rival of the
Malvern-based fund giant Vanguard, and posted a chart in
a news release highlighting the fee differences between
the two (Fidelity oversees roughly $2.5 trillion in
assets, and Vanguard roughly $5 trillion).
investors may actually one day earn money — say, on a
mutual fund rebate? — if we choose one firm over
another. Yes, it’s a joke, but can more zero-fee funds
be far behind? What will Vanguard do to respond? We
asked for comment but didn’t hear back by press time.
they had been thinking strategically, Vanguard should
have welcomed Fidelity to the low-cost arena and used it
to promote the fact that they’ve been low cost across
their entire platform for years," said Dan Wiener,
editor of the Independent Adviser for Vanguard Investors
Fidelity would have been a huge win for Vanguard and
would have stolen all the attention and refocused it on
said, these are brand-new funds with no track record.
For more information, here’s a link to Fidelity’s
SEC filing on the new funds. Moreover, the adviser to
these two funds can route its trade orders through
Fidelity, according to the SEC filing, which is likely
how Fidelity will make money off of the "free"
may place trades with certain brokers, including
National Financial Services LLC and Luminex Trading
& Analytics LLC," with whom Fidelity is under
common control, according to the SEC filing.
name, mandate for Vanguard metals fund
Vanguard changed the name and mandate on one of its
precious metals funds. Originally called Gold &
Precious Metals at its 1984 inception, the fund was
renamed Precious Metals in 2001 and then recast again as
Precious Metals & Mining in 2004. M&G Capital
Management was the outside portfolio manager on the fund
but has been fired and replaced by Wellington
Management, which takes over with a new mandate under
the name Global Capital Cycles.
Tim Buckley said that the restructuring took into
account both "performance and usage." Vanguard
will provide more information in the fund’s July
semiannual report, but that won’t be available until
at least mid-September. Precious Metals & Mining
currently has $2.3 billion in assets, which, while less
than half its size at its April 2011 peak of $5.7
billion, "is remarkable given the horrific
performance its shareholders have suffered," Wiener
Precious Metals & Mining lost 56 percent in 2008,
investors yanked $357 million from the fund. They missed
out on the 76.5 percent gain in 2009. Almost $900
million flowed back into the fund that year and in 2010,
just in time for a run of five losing years when the
fund dropped 72.3 percent.
new objective: low correlation to the broad stock market
by investing in commodity-oriented businesses as it
tries to capture gains from cyclical changes in the
capital cycle. Telecommunications and utility companies
with "irreplaceable or scarce infrastructure
assets" will be a focus, according to Vanguard,
though the fund will maintain "meaningful"
exposure to metals and mining stocks. And, the manager
has the ability to hold lots of cash. Vanguard’s
Buckley said the recast fund will be "more
diversified and predictable" and its expense ratio
will rise by one basis point, from 0.36 percent to 0.37
Global Capital Cycles manager Keith White is also a
co-manager on John Hancock’s $650 million Seaport
Long/Short Fund, which allocates 20 percent of its
assets to a capital cycles long/short strategy. Since
its December 2013 inception, the fund has outperformed
peers in the long/short category but has dramatically
underperformed the MSCI World Index against which John
Hancock measures it. White, at last report, owned no
shares in the fund, Wiener said.
the Vanguard iteration, Global Capital Cycles can have
25 percent or more of its assets in precious metals and
has not yet said what it will benchmark the fund’s
performance against, but Wellington will be subject to a
performance fee. The new strategy should be in place,
along with the new name, by the end of September.
I’ll keep my powder dry, or invest it somewhere
else," Wiener said.