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Portfolio > Mutual Funds

Fidelity Takes On Vanguard in TDF Space, Matching Its Lower Minimums

By Bernice Napach

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Fidelity Investments is taking on Vanguard in the target date fund arena. Less than a month after it finished 2020 as the leader in TDF net asset flows, displacing Vanguard, it has slashed the investment minimum for the institutional premium class of its Freedom Index Funds from $100 million to $5 million, matching a similar move made by Vanguard in mid-December. 

The change for this low-cost share class, effective today, means more retirement fund sponsors and their participants will have access to the funds at a lower fee.

All but one of Fidelity Freedom Index Funds will have a lower total next expense ratio than comparable Vanguard target date funds, according to Fidelity.

The exception is the investor share class of the Fidelity Freedom Index Income Funds, whose 12 basis-point expense ratio is the same as its Vanguard counterpart. 

All investor share classes of all Fidelity Freedom Index Funds charge 12 basis points. The institutional premium share class of the funds have an eight basis-point fee while the premier share class of the funds, which has a $2 billion minimum, has a net expense fee of six basis points. The average expense ratio of Vanguard’s index-based institutional target retirement funds is nine basis points.

The 95% reduction in the investment minimum for the institutional premium class of Fidelity’s Freedom Index Funds provides “an even more compelling value proposition” for its millions of customers, including individual investors, workplace retirement plan sponsors and participants and financial advisors, said Daniel Terio, Fidelity’s vice president of target date products, in a statement.

Fidelity’s Freedom Index Series had the biggest inflows of the top 10 target date mutual fund series in 2020, collecting $15.6 billion, or 25% more than in 2019, according to Morningstar. Vanguard’s Target Retirement System collected $2.7 billion in 2020, 92% less than the year before, dropping it to sixth place from first place in 2019.

Bernice Napach

@Think_Napach

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