Fidelity is trimming total expenses to outdo Vanguard, the U.S. asset manager who has introduced the low-cost investment mantra. Fidelity has not only matched but also undercut the price Vanguard charges on its index funds. Vanguard, in the meanwhile, has a stern message for competitors trying to undercut prices. The low-cost investing pioneer will keep lowering fund expenses as it grows.
With the fee war heating up among major players, investors are poised to benefit immensely. If the expense ratio, which includes fund management fee, agent commissions, registrar fees, and selling and promoting expenses, goes down further, investors can earn more. Given such bullish trends, we have discussed two low-cost funds from Vanguard and Fidelity that can make great investment choices.
Fidelity Chasing Vanguard on Fees
Fidelity investments will trim expenses on 14 of its 20 passive products, including stock and bond index mutual funds and sector exchange traded funds. Fidelity’s price cuts mean that the average cost across its stock and bond index funds will decline to 9.9 basis points instead of 11 basis points. U.S. Bond Index fund will trim its expense ratio to 0.14% from 0.15%. The Fidelity Emerging Markets Index fund’s investor share will cut its expense to 0.29% from 0.3%.
Fidelity claims that such expenses are lower than their counterparts at Vanguard. Such reductions will save investors around $18 million a year, as per the Boston-based firm. Fidelity spokesman Charlie Keller said that “Fidelity is firmly committed to providing high-quality index funds that are among the lowest cost in the industry.”
Fidelity continues to build its passive business as investors mostly dump active products. As of June 30, the firm had nearly $300 billion in passive assets, which is around 13% of its total $2.3 trillion assets, as per Morningstar Inc. During the first six months of this year, Fidelity’s active funds saw an outflow of $21.5 billion. On the other hand, passive funds attracted inflows of $20 billion. The shift in revenues is taking place because active funds carry significantly higher fees.
And why not? Fidelity’s biggest active stock fund, the $113.8-billion Fidelity Contrafund (FCNTX - Free Report) charges 68 cents per $100. Meanwhile, its largest passive equity fund, the $119.9 billion Fidelity 500 Index Institutional (FXSIX - Free Report) , charges a meager 3 cents for institutional customers, while Fidelity 500 Index Investor (FUSEX - Free Report) charges just 9 cents from small investors.
Vanguard Will Continue to Push Fees Down
The pioneer of low-cost investing with $4.4 trillion in assets, Vanguard has a message for its competitors trying to undercut its prices: Game on. Vanguard’s new president and incoming chief executive officer, Tim Buckley said that the firm will continue to lower its fees as it continues to expand. Buckley said that “as we continue to get scale, as we continue to grow and we get more efficient, we pass a large part of that back to our clients in the form of lower expenses. That’s not going to stop.”
Vanguard claims that low costs are in their DNA and it’s not a marketing strategy. While rivals are sorting to tactics to match their index and ETF expense ratios, Buckley said that “if other people want to offer index funds, great. But you better be ready to keep lowering price, and we’re going to do it across every product.” In fact, Vanguard’s founder and former chairman Jack Bogle created the index fund and for several years his firm dominated the so-called passive fund market.
Vanguard continues to grow globally since that added scale will keep pushing prices down. The company has taken its fight to Europe, while in June it stepped up competition by launching a U.K. retail fund platform. Sean Hagerty, head of Vanguard’s business in Europe, said the platform will closely mirror its service in the United States. The platform sets a minimum investment of £500 or a monthly amount of £100.
2 Cheap Funds to Buy Now
As Fidelity is trying to beat Vanguard Group at its own game, it could mean big savings for investors. Thanks to such positive developments, we suggest two low-cost funds from Vanguard and Fidelity for enticing returns.
Vanguard High Dividend Yield Index Investor (VHDYX - Free Report) , with a Zacks Mutual Fund Rank #1 (Strong Buy), tracks the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yield. VHDYX employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index.
This Large Value fund, as of the last filing, allocates its funds in three major groups; Large Value, Intermediate Bond and Foreign Bond. Further, as of the last filing, MICROSOFT CORP, EXXON MOBIL CORP and JOHNSON & JOHNSON were the top holdings for VHDYX.
The Vanguard High Dividend Yield Index Investor fund, managed by Vanguard Group, carries an expense ratio of 0.15%, way lower than the category average of 1.06%. Moreover, VHDYX requires a minimal initial investment of $3,000.
VHDYX has a history of positive total returns for over 10 years. Specifically, the fund’s returns over the 1, 3, 5 year benchmarks; 1 year 11.67%, 3 year 10.04% and 5 year 13.4%. To see how this fund performed compared in its category and other #1 and #2 Ranked Mutual Funds, please click here.
Fidelity 500 Index Investor, witha Zacks Mutual Fund Rank #1, invests the majority of its assets in common stocks under the S&P 500 Index, which broadly represents the performance of common stocks publicly traded in the United States.
This Large Blend fund, as of the last filing, allocates its funds in three major groups — Large Value, Large Growth and Intermediate Bond. Further, as of the last filing, APPLE INC, ALPHABET INC and MICROSOFT CORP were the top holdings for FUSEX.
The Fidelity 500 Index Investor fund, managed by Fidelity, carries an expense ratio of 0.09%, much lower than the category average of 0.99%. Moreover, FUSEX requires a minimal initial investment of $2,500.
FUSEX has a history of positive total returns for over 10 years. Specifically, the fund’s returns over the 1, 3, 5 year benchmarks; 1 year 15.95%, 3 year 10.78% and 5 year 14.68%. To see how this fund performed compared in its category and other #1 and #2 Ranked Mutual Funds, please click here.
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