Fidelity competing harder w/Vanguard

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
evestor
Posts: 134
Joined: Sat Feb 21, 2015 5:37 pm

Fidelity competing harder w/Vanguard

Post by evestor » Fri Aug 26, 2016 6:40 pm

Linked directly off of their homepage: https://www.fidelity.com/mutual-funds/i ... ndex-funds

Guessing they are feeling the pain of losing $ to Vanguard index funds.
Has anyone dug in to these funds to see the gotchas?

User avatar
rob
Posts: 3049
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Re: Fidelity competing harder w/Vanguard

Post by rob » Fri Aug 26, 2016 6:43 pm

Great to see some competition - Great for us to have options....
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Fidelity competing harder w/Vanguard

Post by triceratop » Fri Aug 26, 2016 6:46 pm

Some of the Vanguard funds have significant securities lending revenue, which is not reflected in the gross ER. How much of the securities lending revenue does Fidelity pass on to investors?

Will Fidelity always offer these funds at rock bottom expense ratios? What if they shift strategies and you hold it in a taxable account?

Someone mentioned competition -- Vanguard is competing with itself on price. Unless they start competing on customer service (one can hope!) then Fidelity's presence shouldn't affect us. Of course, to the extent that both drive down industry expense ratios through competition then that's a win.

Not for me, but I can see why some may be tempted.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: Fidelity competing harder w/Vanguard

Post by backpacker » Fri Aug 26, 2016 7:09 pm

triceratop wrote:Some of the Vanguard funds have significant securities lending revenue, which is not reflected in the gross ER. How much of the securities lending revenue does Fidelity pass on to investors?
Yes. The real cost of Vanguard funds is even lower than the stated ER. This because they give you the security lending revenue.

To find the real cost, subtracts the return of a fund from the return of the index its tracking. For example, take Vanguard's total market fund with a stated ER of five basis points.

Image

As you can see, the real cost of owning Vanguard total market has been a lot less than the ER. Instead of five basis points, it has been two or three, which is still lower than the 4.5 basis points Fidelity is offering.
Last edited by backpacker on Fri Aug 26, 2016 7:12 pm, edited 2 times in total.

retiredjg
Posts: 38253
Joined: Thu Jan 10, 2008 12:56 pm

Re: Fidelity competing harder w/Vanguard

Post by retiredjg » Fri Aug 26, 2016 7:10 pm

I'm glad they are working at competing because that means they are offering better products that before.

It may be that their expense ratios are lower, but it is a difference that is so small as to be totally insignificant. However, if it gets people out of actively managed funds and into index funds, this is a good thing.

User avatar
njboater74
Posts: 633
Joined: Mon Apr 25, 2016 8:21 pm

Re: Fidelity competing harder w/Vanguard

Post by njboater74 » Fri Aug 26, 2016 7:12 pm

Yes, I noticed this as well and it was presented to me on the Fidelity homepage. Interestingly, when I saw it I opened up a different browser that had never visited Bogleheads or Vanguard, and they presented different content.

Fidelity is in a slight bind. They don't want to lose their investors to Vanguard, but they also don't want their own customers leaving their actively managed funds and going to the index funds.

I think Vanguard's ownership structure makes the low cost model sustainable in the long term. I doubt Fidelity's ownership would be happy selling nothing but index funds.
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth and tell the whole world - 'No, YOU move'--Captain America, Boglehead

User avatar
slayed
Posts: 270
Joined: Wed Feb 01, 2012 3:07 pm

Re: Fidelity competing harder w/Vanguard

Post by slayed » Fri Aug 26, 2016 7:21 pm

one other consideration is that the reason expense ratios are so low at Fidelity is the "reimbursement arrangement" that expires in April 2017. who knows whether it will be extended? from the prospectus of FSTMX (Fidelity Total Market Index):
(a) Fidelity Management & Research Company (FMR) has contractually agreed to reimburse Investor Class and Fidelity Advantage Class of the fund to the extent that total operating expenses (excluding interest, certain taxes, certain securities lending costs, brokerage commissions, extraordinary expenses, and acquired fund fees and expenses, if any), as a percentage of their respective average net assets, exceed 0.10% and 0.05%. These arrangements will remain in effect through April 30, 2017. FMR may not terminate these arrangements before the expiration date without the approval of the Board of Trustees.
they are artificially reducing the expenses of these funds. will they keep it up?

User avatar
LadyGeek
Site Admin
Posts: 57474
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Fidelity competing harder w/Vanguard

Post by LadyGeek » Fri Aug 26, 2016 7:21 pm

This thread is now in the Investing - Theory, News & General forum (news).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Nummerkins
Posts: 355
Joined: Tue Jun 01, 2010 4:41 pm

Re: Fidelity competing harder w/Vanguard

Post by Nummerkins » Fri Aug 26, 2016 7:36 pm

slayed wrote:one other consideration is that the reason expense ratios are so low at Fidelity is the "reimbursement arrangement" that expires in April 2017. who knows whether it will be extended? from the prospectus of FSTMX (Fidelity Total Market Index):
(a) Fidelity Management & Research Company (FMR) has contractually agreed to reimburse Investor Class and Fidelity Advantage Class of the fund to the extent that total operating expenses (excluding interest, certain taxes, certain securities lending costs, brokerage commissions, extraordinary expenses, and acquired fund fees and expenses, if any), as a percentage of their respective average net assets, exceed 0.10% and 0.05%. These arrangements will remain in effect through April 30, 2017. FMR may not terminate these arrangements before the expiration date without the approval of the Board of Trustees.
they are artificially reducing the expenses of these funds. will they keep it up?
Schwab's funds used to be the same way. I believe their ERs are now permanent though. Will Fidelity follow suit? Time will tell although I can't see what they would gain by "raising" the ERs.

jjface
Posts: 2606
Joined: Thu Mar 19, 2015 6:18 pm

Re: Fidelity competing harder w/Vanguard

Post by jjface » Fri Aug 26, 2016 7:37 pm

They are all cheap - can't complain

User avatar
Watty
Posts: 17446
Joined: Wed Oct 10, 2007 3:55 pm

Re: Fidelity competing harder w/Vanguard

Post by Watty » Fri Aug 26, 2016 8:48 pm

A few months ago they dropped the Spartan brand name for their index funds.

I always thought that Spartan was a funny anti-marketing way to discourage people from selecting them.

Topic Author
evestor
Posts: 134
Joined: Sat Feb 21, 2015 5:37 pm

Re: Fidelity competing harder w/Vanguard

Post by evestor » Fri Aug 26, 2016 9:24 pm

triceratop wrote:Some of the Vanguard funds have significant securities lending revenue, which is not reflected in the gross ER. How much of the securities lending revenue does Fidelity pass on to investors?
This reminds me...how does this forum feel about the securities lending program? I'll admit my bias is to dislike if only because it's not what I signed up for, I signed up to own the index & hence underlying securities. But I have not explored it extensively.

Thoughts?

User avatar
grabiner
Advisory Board
Posts: 25244
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Fidelity competing harder w/Vanguard

Post by grabiner » Fri Aug 26, 2016 9:30 pm

evestor wrote:
triceratop wrote:Some of the Vanguard funds have significant securities lending revenue, which is not reflected in the gross ER. How much of the securities lending revenue does Fidelity pass on to investors?
This reminds me...how does this forum feel about the securities lending program? I'll admit my bias is to dislike if only because it's not what I signed up for, I signed up to own the index & hence underlying securities. But I have not explored it extensively.
You still get the return of the securities even if they are lent out, as well as any income from the lending. (There can be tax consequences; if a lent-out stock pays a dividend, the holder must pay an equal amount to the mutual fund, but that payment does not count as a qualified dividend.)
Wiki David Grabiner

derbogle
Posts: 11
Joined: Mon Nov 11, 2013 7:05 pm

Re: Fidelity competing harder w/Vanguard

Post by derbogle » Fri Aug 26, 2016 9:44 pm

Some mutual fund companies even have parameters on their securities lending programs called a qualified dividend income gross-up requiring the borrower to reimburse for taxes on the manufactured income. Others recall securities for dividends so they do not run into this issue, while they may choose to leave loans out whose income more than offsets the additional tax.

Ultimately, I strongly feel that any fund whether it is active or passively managed, that does not engage in securities lending is not acting as a fiduciary. There is truly no compelling argument not to participate. You should not lose any sleep over Vanguard engaging in securities lending on their funds.

User avatar
wjo
Posts: 497
Joined: Fri Jan 22, 2010 12:17 pm

Re: Fidelity competing harder w/Vanguard

Post by wjo » Fri Aug 26, 2016 9:51 pm

Competition is good. One more reason for me to be happy with having accounts at Fidelity. New money is going into some of these Fidelity (ex Spartan) index funds.

I am not worried that Fidelity will raise its expenses - competition should keep the expenses low for some time. Securities lending benefits taken by Fidelity along with the possibility Fidelity will charge the funds higher transaction fees for buying/selling securities (Fidelity acting as the broker) is a small concern, but something that can be watched easily enough by looking at performance against the index. If it becomes a big concern, switching to an ETF or Vanguard fund will be easy enough.

User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Fidelity competing harder w/Vanguard

Post by triceratop » Sat Aug 27, 2016 11:24 am

wjo wrote:Competition is good. One more reason for me to be happy with having accounts at Fidelity. New money is going into some of these Fidelity (ex Spartan) index funds.

I am not worried that Fidelity will raise its expenses - competition should keep the expenses low for some time. Securities lending benefits taken by Fidelity along with the possibility Fidelity will charge the funds higher transaction fees for buying/selling securities (Fidelity acting as the broker) is a small concern, but something that can be watched easily enough by looking at performance against the index. If it becomes a big concern, switching to an ETF or Vanguard fund will be easy enough.
If the securities lending revenue already makes Vanguard's funds cheaper then there is little reason to take the risk of using Fidelity even at this time.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
ruralavalon
Posts: 16548
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Fidelity competing harder w/Vanguard

Post by ruralavalon » Sat Aug 27, 2016 11:57 am

evestor wrote:Linked directly off of their homepage: https://www.fidelity.com/mutual-funds/i ... ndex-funds

Guessing they are feeling the pain of losing $ to Vanguard index funds.
Has anyone dug in to these funds to see the gotchas?
This is more of a marketing strategy, rather than to any significant change in my opinion.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

User avatar
zaboomafoozarg
Posts: 2039
Joined: Sun Jun 12, 2011 12:34 pm

Re: Fidelity competing harder w/Vanguard

Post by zaboomafoozarg » Sat Aug 27, 2016 12:44 pm

I transferred my IRA from VG to Fidelity earlier this year. It got me a $150 match bonus on my contributions for the next 3 years, and ITOT and IXUS and AGG replace VTI and VXUS and BND within a basis point of ER.

User avatar
jwillis77373
Posts: 395
Joined: Mon Jun 25, 2007 9:52 pm
Location: Texas

Re: Fidelity competing harder w/Vanguard

Post by jwillis77373 » Sat Aug 27, 2016 12:50 pm

We're comparing 1/10 ths of a basis point.. and complaining?

Only the Angels on the head of a pin could party with that much in their pocket.

User avatar
White Coat Investor
Posts: 14220
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Fidelity competing harder w/Vanguard

Post by White Coat Investor » Sat Aug 27, 2016 1:08 pm

evestor wrote:Linked directly off of their homepage: https://www.fidelity.com/mutual-funds/i ... ndex-funds

Guessing they are feeling the pain of losing $ to Vanguard index funds.
Has anyone dug in to these funds to see the gotchas?
Good marketing idea, but I think they lost this battle a long time ago. Who is going to switch for 1 basis point? I think they're just trying to keep the folks they already have from jumping ship.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

User avatar
William4u
Posts: 1371
Joined: Fri Jun 01, 2012 3:02 pm

Re: Fidelity competing harder w/Vanguard

Post by William4u » Sat Aug 27, 2016 1:16 pm

triceratop wrote:
wjo wrote:Competition is good. One more reason for me to be happy with having accounts at Fidelity. New money is going into some of these Fidelity (ex Spartan) index funds.

I am not worried that Fidelity will raise its expenses - competition should keep the expenses low for some time. Securities lending benefits taken by Fidelity along with the possibility Fidelity will charge the funds higher transaction fees for buying/selling securities (Fidelity acting as the broker) is a small concern, but something that can be watched easily enough by looking at performance against the index. If it becomes a big concern, switching to an ETF or Vanguard fund will be easy enough.
If the securities lending revenue already makes Vanguard's funds cheaper then there is little reason to take the risk of using Fidelity even at this time.
FYI here is what Vanguard has to say about securities lending...

The short version...
https://advisors.vanguard.com/iwe/pdf/Sec_lending.pdf

The long version...
https://personal.vanguard.com/pdf/icrsl.pdf

livesoft
Posts: 68251
Joined: Thu Mar 01, 2007 8:00 pm

Re: Fidelity competing harder w/Vanguard

Post by livesoft » Sat Aug 27, 2016 1:26 pm

zaboomafoozarg wrote:I transferred my IRA from VG to Fidelity earlier this year. It got me a $150 match bonus on my contributions for the next 3 years, and ITOT and IXUS and AGG replace VTI and VXUS and BND within a basis point of ER.
A few years ago, I simply tranferred VBR over to get a bonus. And it still sits there with no intervening transactions.

So one could transfer over VTI, VXUS, and BND "in-kind" without switching to other ETFs and collect the bonus without being out of the market for even one second. :)
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
LadyGeek
Site Admin
Posts: 57474
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Fidelity competing harder w/Vanguard

Post by LadyGeek » Sat Aug 27, 2016 1:26 pm

William4u wrote:FYI here is what Vanguard has to say about securities lending...

The short version...
https://advisors.vanguard.com/iwe/pdf/Sec_lending.pdf

The long version...
https://personal.vanguard.com/pdf/icrsl.pdf
The wiki version: Securities lending
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

chahn1
Posts: 8
Joined: Thu Jan 01, 2015 1:44 pm

Re: Fidelity competing harder w/Vanguard

Post by chahn1 » Sat Aug 27, 2016 1:46 pm

Looking 10 years out... Is it possible that the fund could be <.001% expense and occasionally beat its index?

User avatar
Fudgie
Posts: 141
Joined: Sun Oct 11, 2015 12:01 pm

Re: Fidelity competing harder w/Vanguard

Post by Fudgie » Sat Aug 27, 2016 3:35 pm

:oops:
Last edited by Fudgie on Fri Dec 08, 2017 7:39 am, edited 1 time in total.

shawcroft
Posts: 927
Joined: Sun Feb 24, 2008 4:18 pm
Location: Connecticut

Re: Fidelity competing harder w/Vanguard

Post by shawcroft » Sat Aug 27, 2016 4:40 pm

jwillis77373 wrote:We're comparing 1/10 ths of a basis point.. and complaining?

Only the Angels on the head of a pin could party with that much in their pocket.
Willis:
Indeed.....Excellent observation!
Shawcroft..

Tier1Capital
Posts: 117
Joined: Sun Apr 03, 2011 5:27 pm

Re: Fidelity competing harder w/Vanguard

Post by Tier1Capital » Sat Aug 27, 2016 8:11 pm

White Coat Investor wrote:
evestor wrote:Linked directly off of their homepage: https://www.fidelity.com/mutual-funds/i ... ndex-funds

Guessing they are feeling the pain of losing $ to Vanguard index funds.
Has anyone dug in to these funds to see the gotchas?
Good marketing idea, but I think they lost this battle a long time ago. Who is going to switch for 1 basis point? I think they're just trying to keep the folks they already have from jumping ship.
Customer service is also an factor. This expense ratio competition made it easy for me to escape Vanguard's subpar customer service.

Schwab is doing the same thing. Choices are good.

http://www.schwab.com/public/schwab/inv ... index_etfs

Spirit Rider
Posts: 11769
Joined: Fri Mar 02, 2007 2:39 pm

Re: Fidelity competing harder w/Vanguard

Post by Spirit Rider » Sat Aug 27, 2016 8:48 pm

triceratop wrote:Will Fidelity always offer these funds at rock bottom expense ratios? What if they shift strategies and you hold it in a taxable account?
There is nothing to see here. Fidelity's index fund expense ratios have been competitive and often lower than Vanguard's for more than fifteen years. Your statements are from the same Fear, Uncertainty and Doubt (FUD) playbook as other Vanguard champions during all that time. I must say it is not something I expect to see continued by a moderator, especially considering it has no basis in reality.

The only real substantial advance by Fidelity has been the recent addition of index funds for more asset classes. This allows those that slice and dice more options, but a competitive Fidelity three fund allocation has been available for 20 years.

You do not need to use Vanguard to be a Boglehead. Although I think many on this forum are still in the first stage of grief (denial) when confronted by reality. I think many Vanguard Bogleheads have a behavioral finance issue in that they let their emotional attachment to Vanguard influence their judgment.

ftobin
Posts: 1040
Joined: Fri Mar 20, 2009 3:28 pm

Re: Fidelity competing harder w/Vanguard

Post by ftobin » Sun Aug 28, 2016 5:01 am

Spirit Rider wrote:
triceratop wrote:Will Fidelity always offer these funds at rock bottom expense ratios? What if they shift strategies and you hold it in a taxable account?
There is nothing to see here. Fidelity's index fund expense ratios have been competitive and often lower than Vanguard's for more than fifteen years. Your statements are from the same Fear, Uncertainty and Doubt (FUD) playbook as other Vanguard champions during all that time. I must say it is not something I expect to see continued by a moderator, especially considering it has no basis in reality.
Even though the Fidelity might beat the expense ratios, their returns seem worse. After 10 years, Vanguard Total Stock Market, has returned 7.85, while Fidelity's has returned 7.78. I used Admiral and Premium classes, which have the same expense ratio. Similar results for their Total Bond index funds.
This allows those that slice and dice more options, but a competitive Fidelity three fund allocation has been available for 20 years.
I don't think Fidelity didn't have a total international index fund until a few years ago; their international fund only had developed markets.

akpk
Posts: 54
Joined: Mon May 13, 2013 7:03 pm

Re: Fidelity competing harder w/Vanguard

Post by akpk » Sun Aug 28, 2016 10:13 am

Spirit Rider wrote: You do not need to use Vanguard to be a Boglehead. Although I think many on this forum are still in the first stage of grief (denial) when confronted by reality. I think many Vanguard Bogleheads have a behavioral finance issue in that they let their emotional attachment to Vanguard influence their judgment.
very well said :sharebeer

afan
Posts: 4364
Joined: Sun Jul 25, 2010 4:01 pm

Re: Fidelity competing harder w/Vanguard

Post by afan » Sun Aug 28, 2016 10:26 am

I generally hate this form of argument, but here goes:

Vanguard returns all the net revenue from securities lending to the fund. Vanguard stated this clearly and publicizes this fact.

Fidelity, as best I can tell, is silent on what it does. This makes me assume it keeps as much of the revenue as it can.

If anyone can find a Fidelity statement on where this money goes, please post the link.

I am happy, more or less, to keep money in a Fidelity retirement account where I can bail out without tax consequences if they do something funny with the funds. Or more likely, when I find out about what they have been doing. I would never buy in a taxable account, since I would be stuck in order to avoid capital gains taxes.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

peppers
Posts: 1389
Joined: Tue Oct 25, 2011 7:05 pm

Re: Fidelity competing harder w/Vanguard

Post by peppers » Sun Aug 28, 2016 10:49 am

The repercussion's of Bogle's Folly are still being felt today. :)
"..the cavalry ain't comin' kid, you're on your own..."

User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Fidelity competing harder w/Vanguard

Post by triceratop » Sun Aug 28, 2016 10:53 am

Spirit Rider wrote:
triceratop wrote:Will Fidelity always offer these funds at rock bottom expense ratios? What if they shift strategies and you hold it in a taxable account?
There is nothing to see here. Fidelity's index fund expense ratios have been competitive and often lower than Vanguard's for more than fifteen years. Your statements are from the same Fear, Uncertainty and Doubt (FUD) playbook as other Vanguard champions during all that time. I must say it is not something I expect to see continued by a moderator, especially considering it has no basis in reality.

The only real substantial advance by Fidelity has been the recent addition of index funds for more asset classes. This allows those that slice and dice more options, but a competitive Fidelity three fund allocation has been available for 20 years.

You do not need to use Vanguard to be a Boglehead. Although I think many on this forum are still in the first stage of grief (denial) when confronted by reality. I think many Vanguard Bogleheads have a behavioral finance issue in that they let their emotional attachment to Vanguard influence their judgment.
You are severely mistaken. All posts I make are simply my opinion and not any real official opinion of the forum (unless stated explicitly, usually in red font face). Moreover, I included my reasoning in my post and it was not solely based on the possibility of tax consequences, which I do not see how you can rule out. It also explained how Vanguard real cost is likely lower than the Fidelity funds despite a nominally lower ER for Fidelity.

I am not a Vanguard champion, as I hold non-vanguard ETFs as needed (EM, foreign small etc). I am simply convinced by the argument I presented. And obviously you don't need to be a Vanguard fan to be a Boglehead. That doesn't make me incorrect, though. I note your primary argument is a form of past performance implies future performance which I generally have found not to be the case.

I note you did not actually address my reasoning for preferring Vanguard. Oh well. And emotional attachment? Ha! I just started investing two years ago. Stockholm syndrome must set in fast on me!
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
William4u
Posts: 1371
Joined: Fri Jun 01, 2012 3:02 pm

Re: Fidelity competing harder w/Vanguard

Post by William4u » Sun Aug 28, 2016 11:23 am

ftobin wrote:
Spirit Rider wrote:
triceratop wrote:Will Fidelity always offer these funds at rock bottom expense ratios? What if they shift strategies and you hold it in a taxable account?
There is nothing to see here. Fidelity's index fund expense ratios have been competitive and often lower than Vanguard's for more than fifteen years. Your statements are from the same Fear, Uncertainty and Doubt (FUD) playbook as other Vanguard champions during all that time. I must say it is not something I expect to see continued by a moderator, especially considering it has no basis in reality.
Even though the Fidelity might beat the expense ratios, their returns seem worse. After 10 years, Vanguard Total Stock Market, has returned 7.85, while Fidelity's has returned 7.78. I used Admiral and Premium classes, which have the same expense ratio. Similar results for their Total Bond index funds.
This allows those that slice and dice more options, but a competitive Fidelity three fund allocation has been available for 20 years.
I don't think Fidelity didn't have a total international index fund until a few years ago; their international fund only had developed markets.
I've noticed that the Fidelity funds underperform the Vanguard ones by around 2 basis points a year. I wonder if this is (in part) because Vanguard reinvests 100% of the net securities lending income into the fund and Fidelity does not. I do not think there is much transparency on the Fidelity side on this. Vanguard discusses this in (transparent) detail (see my links above).

patrick
Posts: 1700
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Fidelity competing harder w/Vanguard

Post by patrick » Sun Aug 28, 2016 11:56 am

ftobin wrote:
This allows those that slice and dice more options, but a competitive Fidelity three fund allocation has been available for 20 years.
I don't think Fidelity didn't have a total international index fund until a few years ago; their international fund only had developed markets.
With the common recommendation of only 20% of stocks in international, excluding emerging markets only means that 4% of what would have been in the stock portion of the portfolio is missing. Of course this would be a larger amount if you held foreign stocks at closer to market weight.

Note that even though emerging markets were included by Vanguard for a long time, they didn't add Canadian stocks or small caps to the international fund until a few years ago. Fidelity was even later to include these.

User avatar
White Coat Investor
Posts: 14220
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Fidelity competing harder w/Vanguard

Post by White Coat Investor » Sun Aug 28, 2016 2:05 pm

akpk wrote:
Spirit Rider wrote: You do not need to use Vanguard to be a Boglehead.
very well said :sharebeer
The problem with this argument is that if Vanguard had never existed, you wouldn't be able to be a Boglehead at Fidelity. Fidelity's low cost index funds are a direct result of their need to compete with Vanguard. No Vanguard= No Need to have low cost index funds.

So whether you do your Bogleheading at Vanguard, Fidelity, Schwab, or iShares, you have Jack Bogle and Vanguard to thank for the ability to do it.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

ReadyOrNot
Posts: 241
Joined: Sun Aug 21, 2016 1:51 pm

Re: Fidelity competing harder w/Vanguard

Post by ReadyOrNot » Sun Aug 28, 2016 2:37 pm

I think Fidelity has had a similar statement about reimbursing expenses to keep the expense ratio below some number (at or barely below the Vanguard level) for another year, for at least 20 years now. I remember telling a co-worker that Vanguard seemed to have mastered the art of making index funds with the lowest costs about 20 years ago. He replied that Fidelity had an index fund (like S&P500) that was actually lower. It was true, but it wasn't obvious, because they listed some baseline number, then had that statement about reimbursing expenses to keep the expense ratio below (what the Vanguard number was -- I think it was 0.25% or 0.22% back then), for at least a year. Then every year since then they have had a similar statement -- they have kept the 500 index fund and then a few more index funds competitive.

Spirit Rider
Posts: 11769
Joined: Fri Mar 02, 2007 2:39 pm

Re: Fidelity competing harder w/Vanguard

Post by Spirit Rider » Sun Aug 28, 2016 3:37 pm

Also, for those of you were previously concerned about the gross vs. net expense ratios (not that it ever mattered). You will note that in every one of the 16 index funds that Fido compared to Vanguard. All of them now have the same exact expense ratios for gross/net. So Fido is no longer subsidizing their index funds.

SavageAmusement
Posts: 77
Joined: Tue Dec 29, 2015 8:02 pm

Re: Fidelity competing harder w/Vanguard

Post by SavageAmusement » Sun Aug 28, 2016 5:08 pm

Fidelity and Vanguard are both great companies. It's hard to go wrong with either one of them. Any difference between the two will be dwarfed by your personal asset allocation decisions.

User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Fidelity competing harder w/Vanguard

Post by triceratop » Sun Aug 28, 2016 5:36 pm

Spirit Rider wrote:Also, for those of you were previously concerned about the gross vs. net expense ratios (not that it ever mattered). You will note that in every one of the 16 index funds that Fido compared to Vanguard. All of them now have the same exact expense ratios for gross/net. So Fido is no longer subsidizing their index funds.
I don't see any such concerns in this thread. The focus appears to center on the lack of transparency surrounding Fidelity's security lending program and how that impacts true cost.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

talzara
Posts: 797
Joined: Thu Feb 12, 2009 7:40 pm

Re: Fidelity competing harder w/Vanguard

Post by talzara » Sun Aug 28, 2016 5:46 pm

William4u wrote:I've noticed that the Fidelity funds underperform the Vanguard ones by around 2 basis points a year. I wonder if this is (in part) because Vanguard reinvests 100% of the net securities lending income into the fund and Fidelity does not. I do not think there is much transparency on the Fidelity side on this. Vanguard discusses this in (transparent) detail (see my links above).
Fidelity also passes along securities lending revenue. It's listed on the Annual Report as "Income from Fidelity Central Funds (including $x from security lending)."

Fidelity Spartan Total Stock Market, for the fiscal year ending February 2016:
  • Securities lending: $13,890,086
  • Ending net assets: 29,458,746,244
  • Effect of securities lending: 0.047%
Vanguard Total Stock Market, for calendar year 2015:
  • Securities lending: $95,010,000
  • Ending net assets: $400,651,057,000
  • Effect of securities lending: 0.024%
All else equal, Fidelity should beat Vanguard by 2 bp. If it trails Vanguard by 2 bp, then it's caused by some other factor. It could even be the choice of index.

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: Fidelity competing harder w/Vanguard

Post by backpacker » Sun Aug 28, 2016 7:23 pm

talzara wrote:
William4u wrote:I've noticed that the Fidelity funds underperform the Vanguard ones by around 2 basis points a year. I wonder if this is (in part) because Vanguard reinvests 100% of the net securities lending income into the fund and Fidelity does not. I do not think there is much transparency on the Fidelity side on this. Vanguard discusses this in (transparent) detail (see my links above).
Fidelity also passes along securities lending revenue. It's listed on the Annual Report as "Income from Fidelity Central Funds (including $x from security lending)."
My guess is that Fidelity reimburses the fund so that (expenses - security lending - reimbursement = stated er). So while listed in the annual reports, each dollar of security lending revenue is one less dollar Fidelity sends to the fund in reimbursements. Maybe when gross and net expenses are the same, security lending goes to the owners of the fund.

Someone should figure this out! I'm curious now.

ftobin
Posts: 1040
Joined: Fri Mar 20, 2009 3:28 pm

Re: Fidelity competing harder w/Vanguard

Post by ftobin » Mon Aug 29, 2016 12:26 am

backpacker wrote:My guess is that Fidelity reimburses the fund so that (expenses - security lending - reimbursement = stated er). So while listed in the annual reports, each dollar of security lending revenue is one less dollar Fidelity sends to the fund in reimbursements. Maybe when gross and net expenses are the same, security lending goes to the owners of the fund.
I don't believe the reporting allows that -- lending is simply income, part of the total return, like dividends would be.

User avatar
William4u
Posts: 1371
Joined: Fri Jun 01, 2012 3:02 pm

Re: Fidelity competing harder w/Vanguard

Post by William4u » Mon Aug 29, 2016 4:40 am

talzara wrote:
William4u wrote:I've noticed that the Fidelity funds underperform the Vanguard ones by around 2 basis points a year. I wonder if this is (in part) because Vanguard reinvests 100% of the net securities lending income into the fund and Fidelity does not. I do not think there is much transparency on the Fidelity side on this. Vanguard discusses this in (transparent) detail (see my links above).
Fidelity also passes along securities lending revenue. It's listed on the Annual Report as "Income from Fidelity Central Funds (including $x from security lending)."

Fidelity Spartan Total Stock Market, for the fiscal year ending February 2016:
  • Securities lending: $13,890,086
  • Ending net assets: 29,458,746,244
  • Effect of securities lending: 0.047%
Vanguard Total Stock Market, for calendar year 2015:
  • Securities lending: $95,010,000
  • Ending net assets: $400,651,057,000
  • Effect of securities lending: 0.024%
All else equal, Fidelity should beat Vanguard by 2 bp. If it trails Vanguard by 2 bp, then it's caused by some other factor. It could even be the choice of index.
The difference couldn't be the index, since the same disparity holds when Fidelity and Vanguard track the same index (e.g., the S&P 500). I wonder what it could be if it isn't the index and isn't the securities lending.

User avatar
telemark
Posts: 2524
Joined: Sat Aug 11, 2012 6:35 am

Re: Fidelity competing harder w/Vanguard

Post by telemark » Mon Aug 29, 2016 11:52 am

Their target date funds, FDIFX and so on, are still running at 0.5% to 0.77%. Maybe Fidelity isn't feeling any pressure there.

User avatar
ruralavalon
Posts: 16548
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Fidelity competing harder w/Vanguard

Post by ruralavalon » Mon Aug 29, 2016 11:59 am

telemark wrote:Their target date funds, FDIFX and so on, are still running at 0.5% to 0.77%. Maybe Fidelity isn't feeling any pressure there.
But they do have lower ER Fidelity freedom index funds. Good luck trying to easily locate them at Fidelity's website :( .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

User avatar
telemark
Posts: 2524
Joined: Sat Aug 11, 2012 6:35 am

Re: Fidelity competing harder w/Vanguard

Post by telemark » Mon Aug 29, 2016 12:16 pm

ruralavalon wrote:
telemark wrote:Their target date funds, FDIFX and so on, are still running at 0.5% to 0.77%. Maybe Fidelity isn't feeling any pressure there.
But they do have lower ER Fidelity freedom index funds. Good luck trying to easily locate them at Fidelity's website :( .
0.24% is certainly an improvement. Maybe I can persuade my company's 401K committee to offer those instead. Thanks.

unius_legionis
Posts: 3
Joined: Wed Aug 24, 2016 10:44 am

Re: Fidelity competing harder w/Vanguard

Post by unius_legionis » Mon Aug 29, 2016 12:27 pm

Is Fidelity's portfolio rebalance tool available for these funds?

retiredjg
Posts: 38253
Joined: Thu Jan 10, 2008 12:56 pm

Re: Fidelity competing harder w/Vanguard

Post by retiredjg » Mon Aug 29, 2016 12:53 pm

unius_legionis wrote:Is Fidelity's portfolio rebalance tool available for these funds?
Which funds?

unius_legionis
Posts: 3
Joined: Wed Aug 24, 2016 10:44 am

Re: Fidelity competing harder w/Vanguard

Post by unius_legionis » Mon Aug 29, 2016 1:42 pm

retiredjg wrote:
unius_legionis wrote:Is Fidelity's portfolio rebalance tool available for these funds?
Which funds?
The ones quoted in the link provided by the OP but specifically these:

Fidelity® Total Market Index Premium ( FSTVX )

Fidelity® Total Intl Index Premium ( FTIPX )

Fidelity® US Bond Index Premium ( FSITX )

Post Reply