September 1, 2004
SLIMFAST:
Fidelity slashes index-fund fees (Beth Healy, September 1, 2004, Boston Globe)
By cutting its index fee to a slim one-tenth of a percent, Fidelity will lose $40 million in revenue on its existing index customers, before any new business ever comes in the door, said Jeff Carney, president of the Boston company's retail group. It's cutting the fee on its Spartan 500 Index fund roughly in half, from 0.19 percent, while broader index funds will see bigger discounts.The fee on the Spartan International Index, for example, will fall to 0.10 percent, from 0.47 percent. For customers, that means a $10,000 investment will cost $10 a year, instead of $19. If, after taxes, the fund gains 10 percent in the year, or $1,000, the investor keeps $990, instead of $981.
What Fidelity gives up in the short term, it's planning to recoup through scale. In both individual accounts and in 401(k) retirement plans, it aims to garner a greater share of the money that typically goes to Vanguard. Fidelity has $41 billion in index funds, out of a total of $630 billion in funds that invest in stocks and bonds.
At Vanguard, index funds total $300 billion, or nearly half the company's $660 billion in stock- and bond-fund assets.
Said Carney, ''I view index funds as a commodity, and we need to offer a competitive price in order to attract the kind of flows we'd like to see."
Wait'll they get the flows from a privatized system--they'll be able to make money after slashing even further. And Deflation continues apace... Posted by Orrin Judd at September 1, 2004 9:15 AM
oj-
Indexing has become a loser for mutual fund families since the introduction of exvhange traded funds or ETF's. If this market plays out the historical pattern, it will probably trade in a rather narrow range for a period of time (10,15.20 years)If you want to make money think total return and low fees, although we may all have to become stock pickers rather than passive, "buy and hold" investors.
Posted by: Tom C, Stamford,Ct. at September 1, 2004 9:41 AMAmen to your last sentence Tom.
Posted by: genecis at September 1, 2004 9:48 AMTom:
In a universal system you'll force folks to be fairly cautious.
Posted by: oj at September 1, 2004 9:49 AMThe mutual fund industry is going into decline, there are too many funds and very few of them manage to even match the performance of an index fund. There will be a lot of portfolio managers looking for work in the near future.
OJ, deflation will hit markets as well. Don't expect positive returns from stocks in a deflationary envorionment. The best thing to hold during a deflation is cash.
ETFs and hedge funds are the flavor du'jour. I don't think that they will succeed any better than mutual funds. Look for some spectacular hedge fund failures in the next 4 years, a la LTCM.
Posted by: Robert Duquette at September 1, 2004 10:40 AMRobert:
That's quite inaccurate. During the last such deflation--late 1800's, likewise driven by technology and globalization--stocks returned a real 10%,
Posted by: oj at September 1, 2004 10:52 AMRobert:
Agreed that cash is best in deflation, but corporations are aggregations of assets; as long as they don't have a high debt-to-value ratio, deflation per se shouldn't affect them much.
And you're arguing that Mutual funds are failures because they won't match the ETFs or index funds (true enough), and that further the ETFs are a bad idea because they're as bad as the mutual funds (huh?).
Posted by: mike earl at September 1, 2004 11:13 AM