Fidelity Investments, which introduced several no-fee index mutual funds last summer, has fired another shot in the ongoing price war among passively managed funds, once again targeting Vanguard.
It cut expense ratios on the entry level share classes of its target date funds for individual investors, known as Fidelity Freedom Index Funds, to 12 basis points from 14, as of June 1. The fees for 21 out of 22 of these funds are now lower than the fees on comparable Vanguard target date funds, according to Fidelity.
(Related: Fidelity Unleashes No-Fee Index Funds)
Most of Vanguard’s target date funds, investor share class, have expense ratios between 13 and 15 basis points; the Vanguard Target Retirement Income Investor Shares class, however, also charges 12 basis points.
Fidelity says the fee cuts will save current Fidelity Freedom Index Fund shareholders approximately $3.2 million annually, based on fund assets as of April 30.
Fidelity also cut the expense ratio for the investor share class of some target date funds that serve workplace retirement plans. The fee for Fidelity Institutional Asset Management (FIAM) Index Target Date commingled pools with assets of $100 million or less is now 12 basis points, down from 14. The expense ratios for larger pools remain unchanged and range between 5 and 8 basis points, and the fee for the Institutional Premium class of Fidelity Freedom Index Funds is also unchanged, at 8 basis points.
Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, says Fidelity’s latest fee cuts are a response to growing demand from investors who “continue to gravitate toward cheaper index-based strategies” that can help the firm attract more assets. The move also “continues a recent trend for Fidelity for aggressively pricing their index-based offerings, rather than solely encouraging investors to choose their actively managed products,” says Rosenbluth.