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Fidelity Cuts Target Date Fund Fees as Competition Heats Up

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Fidelity sign. (Photo: AP) Fidelity sign. (Photo: AP)

Fidelity Investments, which has been cutting prices to compete with low-cost rivals such as Vanguard Group and Charles Schwab Corp., is trimming fees on the target date index funds it sells to retirement plans and rolling out new offerings that combine active and passive strategies.

Fees will be reduced to 14 basis points, or 0.14 percent, from 15 for the investor class of the index funds and 8 basis points from 10 on the institutional premium version, the firm said in filings on Friday.

Fidelity also said its new Freedom Blend funds incorporate both active and index investing and will be cheaper than traditional active offerings. Previously, the firm’s target-date funds focused on one approach or the other.

“We are trying to use our scale to provide value to our customers,” Eric Kaplan, head of Fidelity’s target-date lineup, said in a phone interview.

Fidelity, with a history of picking stocks and bonds, has been lowering costs and beefing up its index lineup over the past few years as investors have pulled money from some of its best-known active funds. The Boston-based firm’s biggest stock fund is now the $150 billion Fidelity 500 Index Fund, which tracks the S&P 500 Index. About $385 billion of the company’s $2.5 trillion in assets under management is in passive funds.

Target date offerings such as the Fidelity Freedom Funds lineup are becoming increasingly popular with those saving for retirement and typically contain a mix of stock and bond funds, an allocation that changes as investors age. The funds’ growth, income and risk profiles are tailored to meet the needs of investors based on how far away they are from retirement. Fidelity Freedom Blend 2030 Fund, for example, is geared toward people planning to retire around 2030, or about 12 years from now.

The target date market topped $1 trillion last year, according to a May report by Morningstar Inc. Vanguard is the biggest player, followed by Fidelity and T. Rowe Price Group Inc.

Separately, Fidelity is adding inflation-protected securities and long-term Treasuries to many of its target funds to insulate investors from both inflationary and deflationary scenarios, said Andrew Dierdorf, a portfolio manager on the series.


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