ETF ‘Fee War’ Spills Over to Index Funds

ETF Trends

Taking cues from the so-called fee war in the exchange traded fund universe, Fidelity Investments is also cutting fees on its largest index mutual funds.

Of its $1.6 billion in assets under mutual funds, Fidelity’s lower fees will affect its index funds holding about $100 billion in assets, according to the Associated Press. Fees on its actively managed funds, though, are unchanged.

Moreover, the fund provider will lower the investment minimum of its investor Class shares to $2,500 from $10,000 while individual investors in a lower-cost share class called the Fidelity Advantage will require $10,000, down from the previous minimum of $100,000.

In contrast, ETFs do not require minimums as they are traded like stocks. The minimum requirement to buy one share of an ETF is the outstanding price on the exchange.

In recent years, investors have become more cost conscious, which was made evident earlier this year when many large ETF providers, notably Schwab, iShares and Vanguard, cut fees on a number of products. The lower fees have also helped Vanguard garner a greater piece of incoming new asset flows. [ETFs and the ‘Vanguard Effect’]

Fidelity’s decision to cut fees may be a response to the ETF’s fee war. For instance, the cheapest index ETF at Schwab comes with a 0.04% expense ratio.

Moreover, Fidelity currently offers one ETF, the Fidelity Nasdaq Composite Index (ONEQ) , but the company has filed to launch actively managed ETFs. [Fidelity Files to Launch Active ETFs]

For more information on mutual funds, visit our mutual fund category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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