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Fidelity Rolls Out Two Expense-Free Index Funds

August 6, 2018

In a bid to lure financial advisors and investors, Fidelity has taken the unorthodox decision to roll out two index funds with zero annual expense ratios, MarketWatch writes.

The Fidelity ZERO Total Market Index Fund and the Fidelity ZERO International Index Fund are the first index mutual funds with no expense ratios in the industry, the firm says in a statement cited by MarketWatch.

But Fidelity is taking other steps to escalate the fee competition with low-fee fund providers of mutual funds and ETFs such as Charles Schwab and Vanguard, according to the web publication. Vanguard, after all, announced last month that it would stop charging commissions on online trades in 1,800 non-Vanguard ETFs, MarketWatch writes.

Fidelity’s answer this month was to announce zero minimums on new accounts, mutual funds and 529 college savings pans, no account fees and free domestic money transfers, according to the web publication. The company is also increasing the number of commission-free iShares ETFs from BlackRock to 240, MarketWatch writes.

Meanwhile, Greg Davis, Vanguard’s chief investment officer, tells Bloomberg his firm isn’t daunted by Fidelity’s latest move. And because Vanguard recently dropped fees on indexed products, it isn’t likely to follow Fidelity’s cuts with more cuts of its own, he tells the news service.

“Do we pay attention to the competitive environment? Absolutely. Are we reactive to what one competitor does? Absolutely not,” he tells Bloomberg.

Davis also says investors should be on the lookout to where Fidelity could make its money back, according to the news service.

“Investors always have to ask themselves when they see an offering like this, ‘What’s the catch?”’ he tells Bloomberg. “The question becomes what else are investors going to be charged in other products?”

By Alex Padalka
  • To read the Bloomberg article cited in this story, click here.
  • To read the MarketWatch article cited in this story, click here.