Broker battle deepens with no-fee index fund
The fee-free index fund has finally arrived.
Fidelity Investments, the Bostonbased mutual fund company, says that it’s launching two new index funds targeted at individual investors that come free of any management fees. The new funds are dubbed the Fidelity ZERO Index Funds.
The two funds can give investors exposure to the entire U.S. stock market and a broad international stock benchmark with a zero expense ratio, marking the latest salvo in a price war on Wall Street. An expense ratio is the annual fee that all funds or exchange-traded funds, or ETFs, charge their shareholders.
The move by Fidelity, a firm once known for its actively managed funds run by star portfolio managers, is the latest salvo in a fierce battle for investor cash between top firms such as Vanguard, Charles Schwab and ETF provider BlackRock, who are increasingly competing on price.
“This stands to benefit not just investors who have accounts at Fidelity, but all investors,” says Arielle O’Shea, in- vesting and retirement specialist at NerdWallet, an online personal finance site. “It’s the latest move in an ongoing war among brokers to hit rock bottom when it comes to fees. More zero-expense ratio funds may be coming.”
The no-fee funds will be available starting Aug. 3. Fidelity also says the new funds will offer zero investment minimums, a move that allows investors to get started with small sums of money.
The new Fidelity Zero Total Market Index Fund, which tracks the entire U.S. stock market, will carry net expenses of 0 percent, which the release claims is a shade below the 0.03 percent charged by Charles Schwab and the 0.14 percent fee at Vanguard for similar fund offerings.
Index funds are investments that track or mimic the performance of stock indexes such as the Standard & Poor’s 500 or other closely followed market gauges.
“We are charting a new course in index investing that benefits investors of all ages, from millennials to baby boomers,” says Kathleen Murphy, president of Fidelity Investments’ personal investing business.