Vanguard Vs Fidelity: Fee War Heats Up

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 Original post

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Written By: Zacks Investment Research