This content is from: Portfolio

Fidelity’s Race to Manage Funds for Free

With investors obsessing over fees, Fidelity goes for broke and adds two more no-cost index funds to its free fund lineup.

  • By Julie Segal

Fidelity Investments, which launched the first two index funds for individuals with an expense ratio of zero in early August, is adding a large-cap index fund and an index fund that invests in small and mid-cap companies to the lineup, the $7 trillion fund manager announced Thursday.

The new funds, the Fidelity ZERO Large Cap Index Fund and the Fidelity ZERO Extended Market Index Fund, will be available to investors on September 18. Investors won’t have to meet any minimum account size to buy the new funds, according to the announcement.

Fidelity’s first zero-fee funds — Fidelity ZERO Total Market Index and Fidelity ZERO International Index — gained $1 billion in assets in a little more than one month.

The two new funds are only the most recent example of Fidelity’s race to cut fees across the board, including eliminating minimums for account openings and for the firm’s retail and advisor mutual funds as well as for its 529 college savings plans. Fidelity also no longer charges account fees or to move money, and it slashed the price tag on its existing index funds.

[II Deep Dive: Asset Managers Face the Zero-Fee Gauntlet]

Fidelity’s fee-free race is not a surprise given investors’ and advisors’ continued obsession with fees and the enormous shift to passive that has occurred over the past decade. Fidelity’s move is being closely watched, and market observers say it will likely encourage copycats — a trend that Moody’s Investors Service said in its second-quarter asset management industry report is a positive sign for an industry under pressure. 

Moody’s assessment was somewhat surprising, as most industries — and the analysts who watch them — view price wars as a downward spiral. Moody’s, though, believes loss-leaders like Fidelity’s zero-fee funds represent the kind of daring move that asset managers need to make to stay competitive.

Related Content