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Mutual fund houses Fidelity and Vanguard have turned their attention to lower their fees in a bid to attract more investors. While this increases competition in the arena, it remains to be seen to what extent these fund houses lower their fees.
Numerous factors such as economic uncertainty, regulatory changes and the effect of social and political development have weighed on mutual fund investors’ sentiments. This has left them to seek cheaper, lower-fee funds that offer decent returns.
Notably, expense ratios have been declining across the industry over the years. In fact, a fierce battle between Fidelity and Vanguard is indicative of how fund houses are constantly changing their strategy and offering new products in a bid to stay competitive and garner more investors.
For instance, Fidelity set a benchmark by coming up with zero-fee index funds last year. The fund house added Fidelity ZERO Large Cap Index Fund (FNILX - Free Report) , Fidelity ZERO Extended Market Index Fund (FZIPX - Free Report) , Fidelity ZERO Total Market Index Fund (FZROX - Free Report) and Fidelity ZERO International Index Fund (FZILX - Free Report) to its impressive passive funds’ list.
Of course, these were meant to compete against Vanguard’s low-fee mutual funds. In response, the Malvern, Pennsylvania-based firm lowered the minimum initial investment on 38 of its Admiral Shares index funds to $3,000 (from a minimum investment level of $10,000). According to Vanguard, this would ensure that close to 1.5 million clients save about $71 million. This only intensified the fee war.
In July 2019, Fidelity added five new index mutual funds that have expense ratios lower than their equivalent Vanguard funds. Apart from these new mutual funds, Fidelity lowered fees on target-date mutual funds and now offers lower expense ratios on its 53 current stock and bond index funds and 11 sector ETFs, as compared with Vanguard’s investment options.
In fact, the industry could now be on the brink of introducing negative expense ratios, per a report by investment research firm Flowspring. This could be the ultimate way asset managers lure potential investors. Neither Fidelity nor Vanguard has ruled out the possibility of negative expense ratio funds in the future, per a report by The New York Times.
By comparing the two fund houses, we find Fidelity as having more to offer than Vanguard in terms of low-fee funds. The former also has more funds available that require lesser minimum initial investments than the latter.
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week.
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Fidelity Versus Vanguard, Who's Leading the Way?
Mutual fund houses Fidelity and Vanguard have turned their attention to lower their fees in a bid to attract more investors. While this increases competition in the arena, it remains to be seen to what extent these fund houses lower their fees.
Numerous factors such as economic uncertainty, regulatory changes and the effect of social and political development have weighed on mutual fund investors’ sentiments. This has left them to seek cheaper, lower-fee funds that offer decent returns.
Notably, expense ratios have been declining across the industry over the years. In fact, a fierce battle between Fidelity and Vanguard is indicative of how fund houses are constantly changing their strategy and offering new products in a bid to stay competitive and garner more investors.
For instance, Fidelity set a benchmark by coming up with zero-fee index funds last year. The fund house added Fidelity ZERO Large Cap Index Fund (FNILX - Free Report) , Fidelity ZERO Extended Market Index Fund (FZIPX - Free Report) , Fidelity ZERO Total Market Index Fund (FZROX - Free Report) and Fidelity ZERO International Index Fund (FZILX - Free Report) to its impressive passive funds’ list.
Of course, these were meant to compete against Vanguard’s low-fee mutual funds. In response, the Malvern, Pennsylvania-based firm lowered the minimum initial investment on 38 of its Admiral Shares index funds to $3,000 (from a minimum investment level of $10,000). According to Vanguard, this would ensure that close to 1.5 million clients save about $71 million. This only intensified the fee war.
In July 2019, Fidelity added five new index mutual funds that have expense ratios lower than their equivalent Vanguard funds. Apart from these new mutual funds, Fidelity lowered fees on target-date mutual funds and now offers lower expense ratios on its 53 current stock and bond index funds and 11 sector ETFs, as compared with Vanguard’s investment options.
In fact, the industry could now be on the brink of introducing negative expense ratios, per a report by investment research firm Flowspring. This could be the ultimate way asset managers lure potential investors. Neither Fidelity nor Vanguard has ruled out the possibility of negative expense ratio funds in the future, per a report by The New York Times.
By comparing the two fund houses, we find Fidelity as having more to offer than Vanguard in terms of low-fee funds. The former also has more funds available that require lesser minimum initial investments than the latter.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week.
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