Fidelity Spartan Inflation Protected Bond Index

[SpringMan]

Fidelity has a couple brand new Spartan funds, investor class and advantage class, for TIPS. Expense ratios are .2% and .1% respectively. Good news for Fidelity investors.
http://fundresearch.fidelity.com/mutual ... /316146133
http://fundresearch.fidelity.com/mutual ... /316146125

[texas_archer]

Thats great for me. Thanks for posting. Now if they will create a Corporate Bond Index Fund.

[Random Musings]

Vanguard TIPS:

Investor shares $3,000 min 0.20%
Admiral Shares $50,000 min 0.11%

Holdings - from their site - just TIPS. Although in their investment policy up to 20% can be invested in non-inflation indexed holdings.

Fidelity TIPS:

Investor class $10,000 min 0.20%
Advantage class $100,000 min 0.10%

Holdings - up to 20% of "other" - similar to Vanguard policy - but won't know what holdings are until future filings.

RM

[ftobin]

I really appreciate the posting about this. I'd be very surprised if Fidelity didn't get a large inflow into this fund, since for the same price as Vanguard's fund (and cheaper >$100K), you get indexing. Furthermore, since it's a bond fund, if they raise fees later, there shouldn't be too much in terms of capital gains to worry about if you want to switch away.

[Jake46]

I have held the Vanguard TIPS fund (VIPSX) for many years but it is in a Fidelity IRA so I can't take advantage of Admiral shares. I will probably move to the Fidelity TIPS fund (FSIYX) because it is an index fund & by purchasing Advantage shares, I can cut my expenses in half.

[MarcMyWord]

Now if they will create a Corporate Bond Index Fund.

If you mean only corporate bonds, then, no, to the best of my knowledge Fidelity doesn't offer an indexed fund of that type.

But they do have a Spartan U.S. Bond Index Fund, comparable to Vanguard's Total Bond Market Index Fund (and both tracking the same Barclays Aggregate index) which includes Treasury bonds and mortgage pass-throughs along with the corporates. Expense ratio is 0.22%, with a current waiver making it 0.21%.

http://fundresearch.fidelity.com/mutual ... /315911107

Meanwhile, it's good to know they're offering an indexed option for TIPS, with the low expenses typical of their Spartan fund lineup.

[nisiprius]

Good for Fidelity. FINPX wasn't vomitrocious, but was problematical enough to make me use iShares TIP rather than FINPX when I had a Fidelity account. This is cool indeed, because those expense ratios are down in Vanguard territory, and we will get to see an active-versus-index competition with Fidelity on the index side (FSIQX) and Vanguard on the active side (VIPSX), not that VIPSX is very active.

It also tends to firm my impression that Fidelity is striving to be a very serious competitor with Vanguard in the index fund arena.

I wonder whether FINPX ever got rid of that very very mysterious holding? For a while, it was clear that FINPX actually held one single loan solitary individual TIPS bond in one issue.

[ftobin]

I'm really curious to see what the turnover of these index funds will be like compared with VIPSX.

[Leif Eriksen]

From the Fidelity website. The bolding is mine and would make me nervous.


Strategy  
Normally investing at least 80% of assets in inflation-protected debt securities included in the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L). Engaging in transactions that have a leveraging effect on the fund, including investments in derivatives - such as swaps (interest rate, total return, and credit default) and futures contracts - and forward-settling securities, to adjust the fund's risk exposure.

Chase also wanted to adjust their risk exposure via derivatives. I don't understand credit default contracts on what should be Treasury bonds.

[Bounca]

Am I missing something. I don't see the big deal. TIP ETF is commision free at Fido with same .20% ER. Correct me if i'm wrong.

[chipmonk]

Good for Fidelity. FINPX wasn't vomitrocious, but was problematical enough to make me use iShares TIP rather than FINPX when I had a Fidelity account. This is cool indeed, because those expense ratios are down in Vanguard territory, and we will get to see an active-versus-index competition with Fidelity on the index side (FSIQX) and Vanguard on the active side (VIPSX), not that VIPSX is very active.

It also tends to firm my impression that Fidelity is striving to be a very serious competitor with Vanguard in the index fund arena.

Yes indeed. I've been buying TIP in my 401k, but it's a hassle to use the ETF rather than a regular mutual fund for regular contributions.

That being said, I think I'm going to wait and see a bit to make sure that Fidelity manages this thing competently as an index fund, as expected.

I wonder whether FINPX ever got rid of that very very mysterious holding? For a while, it was clear that FINPX actually held one single loan solitary individual TIPS bond in one issue.

Can you explain? Are you saying that FINPX wasn't actually a fund holding many TIPS bonds... but just a huge allocation to one particular TIPS issue?

[mschmitt]

From the Fidelity website. The bolding is mine and would make me nervous.


Strategy  
Normally investing at least 80% of assets in inflation-protected debt securities included in the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L). Engaging in transactions that have a leveraging effect on the fund, including investments in derivatives - such as swaps (interest rate, total return, and credit default) and futures contracts - and forward-settling securities, to adjust the fund's risk exposure.

Chase also wanted to adjust their risk exposure via derivatives. I don't understand credit default contracts on what should be Treasury bonds.

Don't almost all funds have similar disclaimers? Vanguards TIPS fund says pretty much the same thing on this page: https://personal.vanguard.com/us/FundsS ... IntExt=INT

Of course the Vanguard fund is "actively" managed and Fidelity's is an index.

[nisiprius]

I wonder whether FINPX ever got rid of that very very mysterious holding? For a while, it was clear that FINPX actually held one single loan solitary individual TIPS bond in one issue.

Can you explain? Are you saying that FINPX wasn't actually a fund holding many TIPS bonds... but just a huge allocation to one particular TIPS issue?

No. I'm saying that... yep, according to the current monthly holdings report, this fund hold U. S. Treasuries with a total market value of $3,648,891,414 comprising 99.7% of its holdings... and when you look down the list of thirty-odd issues, which seems to be listed in order of decreasing total value, it starts at the top with ones that comprise like 5% and 4% of the total

and ends at the bottom with issues that comprise 1% of the total... and then, there, at the bottom, all by its lonesome,

Fidelity tells us it is holding $1,945 worth--nineteen hundred DOLLARS, not thousands or millions--of the 3.375% issue maturing in 4/15/32. Comprising, you will note, "0.000%" of the total. Well, it is actually 0.000053%.

I think that means it is holding precisely one single lonesome solitary bond.

[Random Musings]

For the Vanguard Investor Class TIP fund - average annual returns—updated monthly as of 04/30/2012.

Code: Select all

                                                 1 Yr     3 Yr    5 Yr   10 Yr Since Inception
Inflation-Protect Sec Inv                       11.43%    9.85%   7.54%  7.17%  7.59%
Barclays US Trsy Inflat Prtcd Index             11.67%   10.16%   7.88%  7.43%  7.85%

Note: The fund held a subscription period from June 5, 2000 (the effective date of the fund) to June 29, 2000, during which time all assets were held directly or indirectly in money market instruments. Performance measurement began June 29, 2000.

IMHO, it looks like this "active fund" has more or less tracked the index, less expenses. I'm not sure about tracking error, but I have read some comments where nominals were held in the fund during the past (referencing M* data), but both Vanguard and M* show "100%" inflation-indexed holdings today. Perhaps Vanguard has given up the ghost in trying to outperform and more or less has switched into passive mode over the past few years.

RM

[BBSpartan]

I'm tempted to wait and see how the Fidelity TIPS Index performs versus the actively managed VIPSX/VAIPX. With ER's similar, it seems that other costs and bond selection would be the deciding performance factors. Only time will tell whether there is a distinguishable difference.

[mikep]

Am I missing something. I don't see the big deal. TIP ETF is commision free at Fido with same .20% ER. Correct me if i'm wrong.

Blackrock/Ishares take a cut of securities lending income. That being said there's probably not much income from short sellers who want to short Tips rather than say, facebook. Might be a small difference but not much.

[nisiprius]

Are you saying that FINPX wasn't actually a fund holding many TIPS bonds... but just a huge allocation to one particular TIPS issue?

As noted earlier, no.

But wouldn't it be a stitch if, when the actual holdings are announced, it turned out that Fidelity Spartan Inflation-Protected Bond Index Fund's holdings turned out to consist of 99.44% iShares TIP?

[chipmonk]

Fidelity tells us it is holding $1,945 worth--nineteen hundred DOLLARS, not thousands or millions--of the 3.375% issue maturing in 4/15/32. Comprising, you will note, "0.000%" of the total. Well, it is actually 0.000053%.

I think that means it is holding precisely one single lonesome solitary bond.

Weird. How does a fund holding millions of dollars of bonds end up buying a a single bond? Was it thrown in as some kind of a party favor?

Are you saying that FINPX wasn't actually a fund holding many TIPS bonds... but just a huge allocation to one particular TIPS issue?

As noted earlier, no.

But wouldn't it be a stitch if, when the actual holdings are announced, it turned out that Fidelity Spartan Inflation-Protected Bond Index Fund's holdings turned out to consist of 99.44% iShares TIP?

How does a new open-ended mutual fund launch, exactly? I guess they don't buy any underlying assets until people start buying the fund, but how much leeway do they have to time these initial purchases? Seems like it might be a bit of a bumpy ride for the early birds...

[nisiprius]

Fidelity tells us it is holding $1,945 worth--nineteen hundred DOLLARS, not thousands or millions--of the 3.375% issue maturing in 4/15/32. Comprising, you will note, "0.000%" of the total. Well, it is actually 0.000053%.

I think that means it is holding precisely one single lonesome solitary bond.

Weird. How does a fund holding millions of dollars of bonds end up buying a a single bond? Was it thrown in as some kind of a party favor?

I am intensely curious to know, myself. I even emailed the fund manager directly, and (to my surprise) he replied, but while he said that he appreciated my "keen attention to detail," he said, alas, "I am not at liberty to respond directly." I guess fund managers have to be extremely careful about selectively communicating any kind of information about the internals of fund management.

[chipmonk]

Fidelity tells us it is holding $1,945 worth--nineteen hundred DOLLARS, not thousands or millions--of the 3.375% issue maturing in 4/15/32. Comprising, you will note, "0.000%" of the total. Well, it is actually 0.000053%.

I think that means it is holding precisely one single lonesome solitary bond.

Weird. How does a fund holding millions of dollars of bonds end up buying a a single bond? Was it thrown in as some kind of a party favor?

I am intensely curious to know, myself. I even emailed the fund manager directly, and (to my surprise) he replied, but while he said that he appreciated my "keen attention to detail," he said, alas, "I am not at liberty to respond directly." I guess fund managers have to be extremely careful about selectively communicating any kind of information about the internals of fund management.

Absolutely. I remember there was a thread on here which asked, "What would you ask a billion-dollar fund manager?" To me, the obvious question was, "Would you mind if I take a look at your trades a few minutes before you execute them?"

I wonder if Fidelity simply looks for underpriced TIPS on the secondary market. Perhaps this single bond was grossly mispriced... maybe it was selling for $19 instead of $1900 due to a misplaced decimal point, so they bought it? Otto von Bismarck said that, "Anyone who loves sausage and respects the law should never watch either being made." Perhaps the same would apply to watching one's favorite mutual fund do its trading.

[steve r]

Thats great for me. Thanks for posting.

+1

[momar]

Fidelity tells us it is holding $1,945 worth--nineteen hundred DOLLARS, not thousands or millions--of the 3.375% issue maturing in 4/15/32. Comprising, you will note, "0.000%" of the total. Well, it is actually 0.000053%.

I think that means it is holding precisely one single lonesome solitary bond.

Weird. How does a fund holding millions of dollars of bonds end up buying a a single bond? Was it thrown in as some kind of a party favor?

I am intensely curious to know, myself. I even emailed the fund manager directly, and (to my surprise) he replied, but while he said that he appreciated my "keen attention to detail," he said, alas, "I am not at liberty to respond directly." I guess fund managers have to be extremely careful about selectively communicating any kind of information about the internals of fund management.

Fidelity employee: Hey, I bet you if I buy a single TIP of a particular issue, no one will notice it.
Fidelity manager: You're on!

[Cash]

Thanks for posting! I might switch from TIP. Is this fund currently available for trade though? I'm finding little-to-no pricing information on the finance websites.

[Noobvestor]

Fidelity employee: Hey, I bet you if I buy a single TIP of a particular issue, no one will notice it.
Fidelity manager: You're on!

[jbaron]

That TIPS issue is always mispriced - at least compared to where it should be - because it's the last TIPS issue until you get to 2040, and there's relatively little on the near side either. We happen to own quite a bit of it because it's the year in which we expect to purchase an SPIA, but the yield on it is always low and the price is always high.

If one were running a mutual fund that was able to somehow match durations while eliminating that single issue, it would seem that that strategy would juice your yields some.

Jeff

[grabiner]

How does a new open-ended mutual fund launch, exactly? I guess they don't buy any underlying assets until people start buying the fund, but how much leeway do they have to time these initial purchases? Seems like it might be a bit of a bumpy ride for the early birds...

Vanguard has usually held an initial subscription period when it opens its new funds, with assets invested in money-market instruments for a few weeks. Then, on the opening day, the fund makes the necessary purchases and begins tracking returns.

[chipmonk]

This fund sure doesn't have much in the way of assets yet! According to the Fidelity summary page, only $2.17M. That means I personally hold around 1% of the fund... never felt like a fat cat before

That being said, it's been tracking in lock-step with the Vanguard TIPS funds. So far so good.

[KyleAAA]

Great! Hopefully Vanguard will eventually respond by lowering ER's for its TIPS fund even more. Competition is good.

[nisiprius]

It's just a glitch, of course, and it might be gone by the time anyone else peeks at it, but I think this is funny. This is absolutely for real, I didn't Photoshop it, and is what their website was showing as of 2012-08-20 at 1.12.45 PM when I ask for FINPX and then ask it to compare to FSIQX. The amazing thing is that if you look closely, no, it is not absolutely flat.

[Jerilynn]

It's just a glitch, of course, and it might be gone by the time anyone else peeks at it, but I think this is funny. This is absolutely for real, I didn't Photoshop it, and is what their website was showing as of 2012-08-20 at 1.12.45 PM when I ask for FINPX and then ask it to compare to FSIQX. The amazing thing is that if you look closely, no, it is not absolutely flat.

See! Those low costs of the spartan/admiral funds really do make a difference.