Fidelity Drops Fees, Minimums on Spartan Index Mutual Funds

To keep up with rivals in both the traditional fund and ETF sectors, Fidelity said Tuesday that it is lowering the investment minimums on 22 of its Spartan index funds and the expenses on eight Spartan index funds on Jan. 1.

“Over the past 18 months, Fidelity has aggressively enhanced its Spartan index mutual fund offering with reduced fees and new products,” said J.S. Wynant, executive vice president of investment product management and research at Fidelity Investments, in a press release. “These latest moves are another example of our commitment to providing workplace retirement plan sponsors and individual investors access to a wide-array of high-quality index funds at some of the most competitive pricing in the industry.”

Experts say that, like its fund-industry competitors, Fidelity had little choice but to take such measures.

“When dealing with commodity-like products, such as index-linked funds, price is paramount,” said Ben Johnson, director of passive funds research for Morningstar, in an interview with AdvisorOne. “With funds that track, say, the S&P 500, competition along price is particularly intense.”

Fidelity is dropping the expense of the Spartan S&P 500 Index Fund, for instance, by 0.01% to 0.05% for its Fidelity Advantage share class. Overall, expenses across eight funds and a variety of share classes will decline by 0.01 to 0.08%.

“Much of this [price pressure] has come from the emergence and success of ETFs,” explained Johnson, “and what we’re seeing here is a suite of tradition index-linked products looking to compete on price by lowering its headline expense ratio.”

ETFs, the research analyst points out, still have a number of factors working in their favor–such as increased liquidity in some cases and intra-day trading.

“There’s the liquidity advantage in an ETF wrapper vs. that of a fund wrapper, which many investors put a strong value–both those that buy and hold and look at their rebalancing costs and those that trade positions more frequently,” he noted.

The Vanguard S&P 500 ETF (VOO) has about $117 billion in assets vs. $48.5 billion in the Fidelity Spartan S&P 500 Index (FUSEX).