Fidelity Files for Four Fidelity ZERO℠ Funds (0.00% ER)

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triceratop
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Thu Aug 02, 2018 12:58 pm

whodidntante wrote:
Thu Aug 02, 2018 12:51 pm
Somehow I think if Vanguard was offering 0% funds, we would mostly all agree that it's awesome and perfect in every way. I would still be asking where my brokerage bonus money is, though.
Indeed, things that differ are indeed different.

I mean, I don't think it's so crazy for investors to be skeptical of being long-term customers of a company which owes them nothing versus a mutually owned organization like Vanguard.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

Angst
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Angst » Thu Aug 02, 2018 1:00 pm

lukestuckenhymer wrote:
Thu Aug 02, 2018 12:10 pm
smectym wrote:
Wed Aug 01, 2018 7:08 pm

If we liked Vanguard back when it was "cheapest," and now Acme is "cheapest," we should now like Acme better than Vanguard.

Smectym
We also like Vanguard (and continue to do so) because of its distribution structure and how we never see/pay taxes on LTCG distributions.

You got that right! Though it seems to slip by a lot of folk posting in this thread.

But if the hoi polloi of Boggledom want to follow Fidelity's siren song of a couple basis points and stampede on out of here, perhaps the quality of discussion within the website will rise by a few percentage points. :)

As you and others have already pointed out, there are good reasons why it does not make sense to jump from Vanguard's index offerings to Fidelity's new "Zero" mutual funds simply because of the differences in ERs.

Things such as the following can and likely will continue to easily subsume a few basis points. The task is a bit more complicated than just choosing the lowest ER:
  • Tracking Error
  • Capital Gains
  • Securities lending
  • Mutual Ownership Structure
Take a deep breath, maybe change your underwear and then check your understanding of the implications of the above issues.

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munemaker
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by munemaker » Thu Aug 02, 2018 1:03 pm

cj2018 wrote:
Thu Aug 02, 2018 12:48 pm

What makes me roll my eye is Fidelity can always change the ER back up to non-zero in the future should they desire or market condition warrants
No one knows what the future holds, but we do know the trend right now is for less fees. So I don't see an increase anytime soon.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jazman12 » Thu Aug 02, 2018 1:24 pm

triceratop wrote:
Wed Aug 01, 2018 12:48 pm
Here is the cut that Fidelity has taken from some of their funds (look at the SAI for a fund):

Image

So for Total Stock Market about 40% of the return goes to investors who take 100% of the risk. Sweet deal, I'm sure Fidelity is loving this PR! :twisted:
great analysis...thanks.
Act soon... time is running out

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by 1030danielle » Thu Aug 02, 2018 1:29 pm

It’s dawning me that all this talk about the minutiae of this change reminds me of how I got mired in the devilish details before deciding on the simple three-fund portfolio. I kept trying to create the “perfect” portfolio before deciding on the “good enough” portfolio.
Trying to remind myself now to Keep It Simple and Stay the Course.

:happy
Three-funder with a tech tilt.

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corn18
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by corn18 » Thu Aug 02, 2018 1:36 pm

1030danielle wrote:
Thu Aug 02, 2018 1:29 pm
It’s dawning me that all this talk about the minutiae of this change reminds me of how I got mired in the devilish details before deciding on the simple three-fund portfolio. I kept trying to create the “perfect” portfolio before deciding on the “good enough” portfolio.
Trying to remind myself now to Keep It Simple and Stay the Course.

:happy
Nailed it. I am paying $346 / year on a million dollars. Don't let better get in the way of good enough.
Don't do something, just stand there!

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by PhilosophyAndrew » Thu Aug 02, 2018 2:23 pm

Angst wrote:
Thu Aug 02, 2018 1:00 pm
But if the hoi polloi of Boggledom want to follow Fidelity's siren song of a couple basis points and stampede on out of here, perhaps the quality of discussion within the website will rise by a few percentage points. :)
Rather an angst-ridden reflection, so the username fits!

Andy.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by PhilosophyAndrew » Thu Aug 02, 2018 2:27 pm

1030danielle wrote:
Thu Aug 02, 2018 1:29 pm
It’s dawning me that all this talk about the minutiae of this change reminds me of how I got mired in the devilish details before deciding on the simple three-fund portfolio. I kept trying to create the “perfect” portfolio before deciding on the “good enough” portfolio.
Trying to remind myself now to Keep It Simple and Stay the Course.

:happy
Nicely-said!

Development like this one are bound to excite the “optimizers.” Over-concern for optimizations contradicts the core Boglhead value o simplicity, just as you suggest.

Andy.

aqan
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by aqan » Thu Aug 02, 2018 2:32 pm

marcopolo wrote:
Wed Aug 01, 2018 9:19 am

I wish they had simply dropped the ER of their existing funds (FSTVX and FSIVX) to ZERO. The large capital gains I have will likely prevent me from taking advantage of the lower ERs on these new funds.
Pretty sure they had modify the fine print to allow themselves to make some money by other means.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by steve roy » Thu Aug 02, 2018 2:47 pm

Dad taught me: never buy a new model car during the first year of production.

I won’t be moving accounts anytime soon.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by POLO » Thu Aug 02, 2018 2:54 pm

I don't understand, FBIDX, FSITX, and FXSTX all now have identical expense ratios and a $0 buy in? :confused
How is this supposed to work?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jhfenton » Thu Aug 02, 2018 3:03 pm

POLO wrote:
Thu Aug 02, 2018 2:54 pm
I don't understand, FBIDX, FSITX, and FXSTX all now have identical expense ratios and a $0 buy in? :confused
How is this supposed to work?
I imagine that they'll merge at least the Investor and Premium class funds. I don't know if there's a reason to keep a separate Institutional share class, or if they'll merge all three.

But mergers take time and paperwork. Lowering expense ratios can be immediate.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by nedsaid » Thu Aug 02, 2018 3:18 pm

informal guide wrote:
Wed Aug 01, 2018 11:45 am
One interesting part of the Fidelity press release is as follows:

" industry’s first self-indexed mutual fund..."

meaning that Fidelity will itself create the index to which the new funds will be managed. This is different than the major index funds today, which track externally created indexes, such as the S&P 500. How will this self-indexed index be created and managed and how will that differ from existing indexes?

My understanding is that the index funds today have to pay a fee of some sort to the index providers (e.g., S&P). Fidelity will not incur this expense.
This is similar to Dimensional Fund Advisors which offers passive funds that don't follow a particular index. Fidelity will be able to use patient trading strategies and not have to worry about front-running of a published index.
A fool and his money are good for business.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by SpaethCo » Thu Aug 02, 2018 3:20 pm

jhfenton wrote:
Thu Aug 02, 2018 3:03 pm
POLO wrote:
Thu Aug 02, 2018 2:54 pm
I don't understand, FBIDX, FSITX, and FXSTX all now have identical expense ratios and a $0 buy in? :confused
How is this supposed to work?
I imagine that they'll merge at least the Investor and Premium class funds.
According to this, Investor, Premium, Institutional, and Institutional Premium are all going to merge in November:

https://www.fidelity.com/bin-public/060 ... esting.pdf

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Fidelity to Offer No-Fee Index Funds

Post by FIBoston » Thu Aug 02, 2018 3:41 pm

https://www.foxbusiness.com/markets/fid ... ndex-funds

This is an interesting move to me. I'm sure Schwab will probably do the same thing soon but I'm wondering if Vanguard will also follow suit. I'm also curious to see if these funds would be available to add to a 401k portfolio offering.

One question I have is the phrase "Self-indexed mutual fund". I'm assuming this means that Fidelity is creating their own benchmark instead of going elsewhere for that. Am I on the right track there?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by LadyGeek » Thu Aug 02, 2018 3:47 pm

^^^ FIBoston - I moved your post into the on-going discussion.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by mickeyd » Thu Aug 02, 2018 3:48 pm

Meaty wrote:
Wed Aug 01, 2018 5:01 pm
mickeyd wrote:
Wed Aug 01, 2018 4:28 pm
Meaty wrote:
Wed Aug 01, 2018 11:54 am
Any indication when Vanguard will follow suit? It’s a pain to transfer companies but this would be worth it
I don't believe that VG uses loss-leaders or subsidizes funds as other MF companies do. The VG ER is truly what the cost to run the fund is. It's that simple.

The Johnson family is rich and can afford it. VG does not wish to burden the other investors with such non-sense.
Thanks for the info. So a dumb question on my part - why would I stay with VG if I’m looking for only total stock market at the lowest cost?
Perhaps you may consider moving your account to Fido.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by nedsaid » Thu Aug 02, 2018 3:55 pm

I don't know, maybe this seems corny and all of that, but I wonder how this price war is going to affect the employees. I know, silly me, to worry about employees. I guess I have an old-fashioned belief that people ought to get paid fairly for the work they do, and in the race to the bottom I can't help but wonder if lay-offs and pay cuts will follow. I just hope that representatives don't all get outsourced to overseas call centers. I hope there will be quality people still around who can actually solve a problem. I am all for competition and fierce competition but I wonder where all this is headed. My guess is that there will be more automation and fewer people.

I do grocery shop at a couple of places where I know the employees are fairly compensated and where I know some of them are in a union. I guess I am out of it to really believe that a fair day's work deserves a fair day's wage. There are places I don't shop because I think the employees aren't treated well.
A fool and his money are good for business.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by deltaneutral83 » Thu Aug 02, 2018 3:57 pm

A 0 Bps expense ratio on a Tot. Intl. index fund is noteworthy to me at 11 bps currently. On a US TSM we are talking 3-4 bps max savings. Hopefully Vanguard will be slashing their funds in half down to 2 bps and 5-6bps for VTI and VXUS respectively. I guess we will have to see how long the ETF game takes to come into play as opposed to the 0 ER game which Fido is using for just mutual funds.
Last edited by deltaneutral83 on Thu Aug 02, 2018 4:01 pm, edited 1 time in total.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by POLO » Thu Aug 02, 2018 3:57 pm

nedsaid wrote:
Thu Aug 02, 2018 3:18 pm
informal guide wrote:
Wed Aug 01, 2018 11:45 am
One interesting part of the Fidelity press release is as follows:

" industry’s first self-indexed mutual fund..."

meaning that Fidelity will itself create the index to which the new funds will be managed. This is different than the major index funds today, which track externally created indexes, such as the S&P 500. How will this self-indexed index be created and managed and how will that differ from existing indexes?

My understanding is that the index funds today have to pay a fee of some sort to the index providers (e.g., S&P). Fidelity will not incur this expense.
This is similar to Dimensional Fund Advisors which offers passive funds that don't follow a particular index. Fidelity will be able to use patient trading strategies and not have to worry about front-running of a published index.
Aren't the holdings on the fund still published? They state they rebalance annually and even specify the dates, how would front running be prevented?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by nedsaid » Thu Aug 02, 2018 4:13 pm

POLO wrote:
Thu Aug 02, 2018 3:57 pm
nedsaid wrote:
Thu Aug 02, 2018 3:18 pm
informal guide wrote:
Wed Aug 01, 2018 11:45 am
One interesting part of the Fidelity press release is as follows:

" industry’s first self-indexed mutual fund..."

meaning that Fidelity will itself create the index to which the new funds will be managed. This is different than the major index funds today, which track externally created indexes, such as the S&P 500. How will this self-indexed index be created and managed and how will that differ from existing indexes?

My understanding is that the index funds today have to pay a fee of some sort to the index providers (e.g., S&P). Fidelity will not incur this expense.
This is similar to Dimensional Fund Advisors which offers passive funds that don't follow a particular index. Fidelity will be able to use patient trading strategies and not have to worry about front-running of a published index.
Aren't the holdings on the fund still published? They state they rebalance annually and even specify the dates, how would front running be prevented?
Well, changes to the internal index aren't announced. You just see the composition each quarter.
A fool and his money are good for business.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by SeekingAPlan » Thu Aug 02, 2018 4:18 pm

nedsaid wrote:
Thu Aug 02, 2018 3:55 pm
I don't know, maybe this seems corny and all of that, but I wonder how this price war is going to affect the employees. I know, silly me, to worry about employees. I guess I have an old-fashioned belief that people ought to get paid fairly for the work they do, and in the race to the bottom I can't help but wonder if lay-offs and pay cuts will follow. I just hope that representatives don't all get outsourced to overseas call centers. I hope there will be quality people still around who can actually solve a problem. I am all for competition and fierce competition but I wonder where all this is headed. My guess is that there will be more automation and fewer people.

I do grocery shop at a couple of places where I know the employees are fairly compensated and where I know some of them are in a union. I guess I am out of it to really believe that a fair day's work deserves a fair day's wage. There are places I don't shop because I think the employees aren't treated well.
My feeling is that companies cut employee costs wherever they can regardless of whether or not the savings are passed along to the customer.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by toto238 » Thu Aug 02, 2018 5:03 pm

Has Fidelity provided information on how much of their security lending revenue they are going to share with the holders of these funds?

Because I could very easily see in the fine print that you get a zero expense ratio but they get to keep 100% of all security lending revenue.

If that were to happen, the incentive for Fidelity as a profit-maximizing entity would be to generate as much securities lending revenue as they possibly can for themselves. It is the only rational thing to do, I would think. And if they're trying to maximize that revenue they're going to have to lend to riskier and riskier borrowers. And they'll be investing the collateral they receive in riskier and riskier investments.

Many Vanguard funds already probably have an effectively negative ER due to generating more securities lending revenue than their expenses.

Would you rather have a fund with 5bps of ER and 10bps of extra return due to securities lending? Or would you rather a fund with 0bps of ER but no extra return on the securities lending?

Mathematically, you're better off with the former than the latter.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by epoxyresin » Thu Aug 02, 2018 5:12 pm

It seems like with these small of numbers (several basis points) you have to look at more than expense ratio to actually get an apples-to-apples comparison? From the previous responses here, I guess Vanguard (and everyone) does security lending. Vanguard just adds the extra money to a tiny bump in return, while I guess these Fidelity funds will use it to lower the already small expense ratio to zero. Plus there are tracking errors to consider, which are generally several basis points per year. Plus I guess the new Fidelity funds will follow a slightly different index, so it's possible for the indices to perform differently. I guess what I'm saying is, if you invest $1000 in both a Vanguard total index and one of these Fidelity zero ER funds, which one has more money at the end of the year, and how much? It sounds like the Fidelity funds might take a slightly riskier approach to how they lend securities, so they'd be expected to have slightly higher returns on average?

I suspect that, at the end of the day, this will be something that generates a lot of discussion, but doesn't actually make much difference at all. The differences in fund cost, return, and risk appear to be quite minuscule to me.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by MnD » Thu Aug 02, 2018 5:15 pm

The indexing isn't MSCI or CRSP or FTSE so we now have another fantastic set of non-identical fund pairings for tax-loss harvesting from Schwab, Vanguard or iShares funds or ETF's. I don't get all the grousing and snacking from the sour grapes barrel in this thread. :beer
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Thu Aug 02, 2018 5:25 pm

MnD wrote:
Thu Aug 02, 2018 5:15 pm
The indexing isn't MSCI or CRSP or FTSE so we now have another fantastic set of non-identical fund pairings for tax-loss harvesting from Schwab, Vanguard or iShares funds or ETF's. I don't get all the grousing and snacking from the sour grapes barrel in this thread. :beer
The funds are not going to be as tax efficient as existing options so they’re not suitable for an indefinite holding period as is possible with tax-loss partners.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by GeraniumLover » Thu Aug 02, 2018 5:35 pm

triceratop wrote:
Thu Aug 02, 2018 5:25 pm
The funds are not going to be as tax efficient as existing options so they’re not suitable for an indefinite holding period as is possible with tax-loss partners.
How do you know that they won't be as tax efficient?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Thu Aug 02, 2018 5:38 pm

GeraniumLover wrote:
Thu Aug 02, 2018 5:35 pm
triceratop wrote:
Thu Aug 02, 2018 5:25 pm
The funds are not going to be as tax efficient as existing options so they’re not suitable for an indefinite holding period as is possible with tax-loss partners.
How do you know that they won't be as tax efficient?
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TOJ » Thu Aug 02, 2018 5:52 pm

corn18 wrote:
Thu Aug 02, 2018 1:36 pm
1030danielle wrote:
Thu Aug 02, 2018 1:29 pm
It’s dawning me that all this talk about the minutiae of this change reminds me of how I got mired in the devilish details before deciding on the simple three-fund portfolio. I kept trying to create the “perfect” portfolio before deciding on the “good enough” portfolio.
Trying to remind myself now to Keep It Simple and Stay the Course.

:happy
Nailed it. I am paying $346 / year on a million dollars. Don't let better get in the way of good enough.
Man. I'd change brokerages for a gas tank's worth of savings.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by munemaker » Thu Aug 02, 2018 5:56 pm

nedsaid wrote:
Thu Aug 02, 2018 3:55 pm
I do grocery shop at a couple of places where I know the employees are fairly compensated and where I know some of them are in a union. I guess I am out of it to really believe that a fair day's work deserves a fair day's wage. There are places I don't shop because I think the employees aren't treated well.
I only take into account the product quality, price and availability. I don't really factor in any political stuff...where products are made, what people are paid, whatever. Just give me a good product at a good price.

I don't care what goes on behind the curtain. That's up to the business owners to deal with.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by steve roy » Thu Aug 02, 2018 5:58 pm

I think the perceived advantage to these new funds is the low buy-in.

But it remains to be seen whether these Fidelity offerings out-perform Vanguards.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by munemaker » Thu Aug 02, 2018 6:00 pm

nedsaid wrote:
Thu Aug 02, 2018 3:18 pm

This is similar to Dimensional Fund Advisors which offers passive funds that don't follow a particular index. Fidelity will be able to use patient trading strategies and not have to worry about front-running of a published index.
I don't think the Vangaurd Total Stock Market Fund (VTSAX) follows a particular index, does it? I should know because I have owned it for years, but I really don't know.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Angst » Thu Aug 02, 2018 6:03 pm

TOJ wrote:
Thu Aug 02, 2018 5:52 pm
corn18 wrote:
Thu Aug 02, 2018 1:36 pm
1030danielle wrote:
Thu Aug 02, 2018 1:29 pm
It’s dawning me that all this talk about the minutiae of this change reminds me of how I got mired in the devilish details before deciding on the simple three-fund portfolio. I kept trying to create the “perfect” portfolio before deciding on the “good enough” portfolio.
Trying to remind myself now to Keep It Simple and Stay the Course.

:happy
Nailed it. I am paying $346 / year on a million dollars. Don't let better get in the way of good enough.
Man. I'd change brokerages for a gas tank's worth of savings.
Yep, and therein lies the dilemma: You want an extra tank of gas, but some of us prefer better mileage.

I identified a few mileage considerations in an earlier post.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by alpenglow » Thu Aug 02, 2018 6:30 pm

munemaker wrote:
Thu Aug 02, 2018 6:00 pm
nedsaid wrote:
Thu Aug 02, 2018 3:18 pm

This is similar to Dimensional Fund Advisors which offers passive funds that don't follow a particular index. Fidelity will be able to use patient trading strategies and not have to worry about front-running of a published index.
I don't think the Vangaurd Total Stock Market Fund (VTSAX) follows a particular index, does it? I should know because I have owned it for years, but I really don't know.
You can find the information you seek at the bottom of the profile page of the fund in question. Here is the link for VTSAX.

https://investor.vanguard.com/mutual-fu ... file/VTSAX

FYI, for VTSAX, the index history is "**Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) through April 22, 2005; MSCI US Broad Market Index through June 2, 2013; and CRSP US Total Market Index thereafter."

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by stlutz » Thu Aug 02, 2018 7:29 pm

To jump in on a couple of questions:

--The SAI for the new funds indicate that holdings will be published monthly with up to a 30 day delay. Most ETFs (excluding Vanguard) report holdings daily with no delay). The SEC is moving toward requiring all ETFs to disclose daily.

--We really haven't seen self-indexing at all largely because the SEC hasn't allowed it for indexed ETFs. So VG can't self-index the Total Market fund unless it wanted to start a new one or the SEC changed its policies.

--The SAI doesn't indicate any different policies regarding securities lending for these funds vs. their existing funds--i.e. all net profits from lending are returned to the fund. The fund company skimming off the top really has been an iShares thing--it's actually not that common across index funds and ETFs overall.

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nedsaid
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by nedsaid » Thu Aug 02, 2018 8:03 pm

munemaker wrote:
Thu Aug 02, 2018 6:00 pm
nedsaid wrote:
Thu Aug 02, 2018 3:18 pm

This is similar to Dimensional Fund Advisors which offers passive funds that don't follow a particular index. Fidelity will be able to use patient trading strategies and not have to worry about front-running of a published index.
I don't think the Vangaurd Total Stock Market Fund (VTSAX) follows a particular index, does it? I should know because I have owned it for years, but I really don't know.
I thought that it followed the Wilshire 5000 Index. It is probably based on a CRSP Index now but I don't know. The fund has done a great job for its shareholders.
A fool and his money are good for business.

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Doom&Gloom
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Doom&Gloom » Thu Aug 02, 2018 8:05 pm

I love competition and options. I can't see how this development could possibly be a bad thing for informed investors.

Choices, choices,and choices, oh my!

Spirit Rider
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Spirit Rider » Thu Aug 02, 2018 8:33 pm

triceratop wrote:
Thu Aug 02, 2018 5:38 pm
GeraniumLover wrote:
Thu Aug 02, 2018 5:35 pm
triceratop wrote:
Thu Aug 02, 2018 5:25 pm
The funds are not going to be as tax efficient as existing options so they’re not suitable for an indefinite holding period as is possible with tax-loss partners.
How do you know that they won't be as tax efficient?
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
Until Vanguard's patent(s) expire.

Helo80
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Helo80 » Thu Aug 02, 2018 8:39 pm

I assume that this was off everyone's radar, right? I think it's great news and +1 for free market competition.

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triceratop
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Thu Aug 02, 2018 8:45 pm

Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm
triceratop wrote:
Thu Aug 02, 2018 5:38 pm
GeraniumLover wrote:
Thu Aug 02, 2018 5:35 pm
triceratop wrote:
Thu Aug 02, 2018 5:25 pm
The funds are not going to be as tax efficient as existing options so they’re not suitable for an indefinite holding period as is possible with tax-loss partners.
How do you know that they won't be as tax efficient?
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
Until Vanguard's patent(s) expire.
Correct.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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nedsaid
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by nedsaid » Thu Aug 02, 2018 8:49 pm

munemaker wrote:
Thu Aug 02, 2018 5:56 pm
nedsaid wrote:
Thu Aug 02, 2018 3:55 pm
I do grocery shop at a couple of places where I know the employees are fairly compensated and where I know some of them are in a union. I guess I am out of it to really believe that a fair day's work deserves a fair day's wage. There are places I don't shop because I think the employees aren't treated well.
I only take into account the product quality, price and availability. I don't really factor in any political stuff...where products are made, what people are paid, whatever. Just give me a good product at a good price.

I don't care what goes on behind the curtain. That's up to the business owners to deal with.
Well, pretty much I am that way too. It is just when you have a problem and have a hard time finding somebody that can fix it, that is when I start getting concerned about how the businesses are run. If you find that employees are just mercenaries looking for their next job, you wonder who is going to help you if you have a problem. I know I am pretty fed up with crummy service which has arisen because much of American business insists on running everything on skeleton crews. I want to do business with companies where the employees care and are well treated. In the final analysis, if the employees aren't treated well, I probably won't be either. That also factors into quality.

I am particularly concerned about financial institutions because that is where my hard earned money goes. I want committed, happy employees watching over my money. I don't want a bunch of dodos who don't know what they are doing. I have had friends in the financial industry and I heard stories that will just curl your hair. To me, the people are everything. So yes, I do care what goes on behind the scenes.
A fool and his money are good for business.

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billthecat
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by billthecat » Thu Aug 02, 2018 9:10 pm

See this critique. It's not terribly condemning, though, despite their conclusion.
We cannot direct the winds but we can adjust our sails.

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Pancakes-Eggs-Bacon
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Pancakes-Eggs-Bacon » Thu Aug 02, 2018 9:33 pm

bosocal wrote:
Wed Aug 01, 2018 12:12 pm
Yes I just got off the phone with Fidelity and they are creating new Mutual Funds that basically do away with the Investor and premium classes. If you hold those mutual funds currently, they will automatically get switched over to the new ones sometime soon.
I hope this switch doesn't mess up cost basis calculations.

ragnathor
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by ragnathor » Thu Aug 02, 2018 9:52 pm

Angst wrote:
Thu Aug 02, 2018 1:00 pm

Things such as the following can and likely will continue to easily subsume a few basis points. The task is a bit more complicated than just choosing the lowest ER:
  • Tracking Error
  • Capital Gains
  • Securities lending
  • Mutual Ownership Structure
Take a deep breath, maybe change your underwear and then check your understanding of the implications of the above issues.
Can you or someone else elaborate on these a bit more and how differences in these areas may lead to increased/decreased costs?

- tracking error - I understand this one, namely how good they are at tracking the index. I imagine there would be minimal difference between Fidelity, Vanguard, or others.
- capital gains - Does this just relate to the structure of the fund (mutual fund vs ETF) and the tax implications? Otherwise the capital gains should be the same if they are tracking the same index, correct?
- securities lending - This is a new area to me I am learning from this post. I understand the concept. So then, Fidelity gains some revenue from this and pays some fees/expenses from it, but these don't show up on the ER, and the income after the expenses/fees goes back to the investor? Does Vanguard do this differently? Is this a significant expense I should be keeping track of for my index funds?
- mutual ownership structure - I understand Vanguard has a unique ownership structure, but wasn't sure if this was advantageous beyond aligned incentives.
Last edited by ragnathor on Thu Aug 02, 2018 9:53 pm, edited 1 time in total.

TIAX
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TIAX » Thu Aug 02, 2018 9:53 pm

billthecat wrote:
Thu Aug 02, 2018 9:10 pm
See this critique. It's not terribly condemning, though, despite their conclusion.
The article quotes the prospectus as follows:
Securities lending allows a fund to retain ownership of the securities loaned and, at the same time, earn additional income
However, Vanguard states that:
The term securities lending may be a bit of a misnomer in the sense that absolute title over the lent securities passes between the parties.
Which is correct?

Chrono Triggered
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Chrono Triggered » Thu Aug 02, 2018 10:11 pm

Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm
triceratop wrote:
Thu Aug 02, 2018 5:38 pm
GeraniumLover wrote:
Thu Aug 02, 2018 5:35 pm
triceratop wrote:
Thu Aug 02, 2018 5:25 pm
The funds are not going to be as tax efficient as existing options so they’re not suitable for an indefinite holding period as is possible with tax-loss partners.
How do you know that they won't be as tax efficient?
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
Until Vanguard's patent(s) expire.
When do they expire?

Angst
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Angst » Thu Aug 02, 2018 10:53 pm

My responses are below...
ragnathor wrote:
Thu Aug 02, 2018 9:52 pm
Angst wrote:
Thu Aug 02, 2018 1:00 pm

Things such as the following can do and likely will continue to easily subsume a few basis points. The task is a bit more complicated than just choosing the lowest ER:
  • Tracking Error
  • Capital Gains
  • Securities lending
  • Mutual Ownership Structure
Take a deep breath, maybe change your underwear and then check your understanding of the implications of the above issues.
Can you or someone else elaborate on these a bit more and how differences in these areas may lead to increased/decreased costs?
I'll take a shot at it, but I can't do all of the work required to answer these issues definitively. I'm not entirely capable of that, largely due to a lack of time and an annoying tendency to end up way out on fairly irrelevant tangents.

- tracking error - I understand this one, namely how good they are at tracking the index. I imagine there would be minimal difference between Fidelity, Vanguard, or others.
Correct, there is "minimal" difference, but I believe that alone has been more than enough alone to compensate just for the ER differentials, at least for the TSM funds. Somewhere up-thread (or was it in another?) someone ran some Morningstar total returns comparisons between Fidelity & Vanguard TSM funds. Was that Nisi? Easy to imagine. Perhaps look for his threads? Or just do it yourself and come back and show the results. Now there are a lot of other funds out there to compare as well and I don't know if anyone's gotten to that yet. Not me!

- capital gains - Does this just relate to the structure of the fund (mutual fund vs ETF) and the tax implications? Otherwise the capital gains should be the same if they are tracking the same index, correct?
Yes, I think overall "otherwise" they should be about the same, but Vanguard's ETF/Mutual Fund structure enables it to essentially eliminate long term capital gains (LTCG) in a way that Fidelity and other mutual funds can't do. You will pay more LTCG taxes with Fidelity than Vanguard, period. How much will that add up to? I dunno, maybe someone can tell us. Would it take care of the ER differential? I dunno, but of course it's just more advantage to Vanguard fund holders. You can look up how much in LTCG were realized by Vanguard funds and their Fidelity equivalents for any given year.

- securities lending - This is a new area to me I am learning from this post. I understand the concept. So then, Fidelity gains some revenue from this and pays some fees/expenses from it, but these don't show up on the ER, and the income after the expenses/fees goes back to the investor? Does Vanguard do this differently? Is this a significant expense I should be keeping track of for my index funds?
I can't answer this question although it ought to be answerable. Some people have suggested (and some have outright stated) that Fidelity doesn't return all the lending $ to the fund holders but Vanguard does. Others say no, they're the same but iShares is bad about this. I'm not sure what the truth is, but I do not imagine Vanguard pays back less.
[Edit] - Based upon review of posts by triceratop, Barry Barnitz and retiringwhen of Fidelity's and Vanguard's most recent SAI reports (from 2018), there's a significant difference between how much of securities lending income Fidelity vs. Vanguard returned to shareholders. Of "Gross income from securities lending activities", I calculate that Vanguard returned 92% to shareholders while Fidelity only returned 39%.

- mutual ownership structure - I understand Vanguard has a unique ownership structure, but wasn't sure if this was advantageous beyond aligned incentives.
Are "aligned incentives" not enough? It's a structure and a principle that has taken Vanguard a long way and has dragged the rest of the industry along kicking and screaming. Comparing Vanguard to the rest of the industry is like comparing altruism to self interest. There may be a limit to what more advantage this can bring to Vanguard shareholders and we may have reached that limit already, but as I think you already accept, it ought to still be looked at as something of an advantage in itself to Vanguard shareholders. When future issues arise which are "grey", when potential exists for a financial organization going "one way or the other" as it encounters new issues and potential revenue sources as well as potential "conflicts of interest", I'm inclined to feel that the mutual ownership structure will continue to be something that works to the advantage of Vanguard shareholders. Obviously it's something that's difficult to quantify. Not that it answers anything, it's interesting how people have made a point of contrasting Jack Bogle's relatively modest wealth with respect to that of Fidelity's founding family's. As I recall, it's quite a disparity, a telling one that many Bogleheads like to point to.
[Edit] I added more comments to the section on Securities Lending above.
Last edited by Angst on Fri Aug 03, 2018 3:22 pm, edited 2 times in total.

Spirit Rider
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Spirit Rider » Thu Aug 02, 2018 11:14 pm

Chrono Triggered wrote:
Thu Aug 02, 2018 10:11 pm
Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm
triceratop wrote:
Thu Aug 02, 2018 5:38 pm
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
Until Vanguard's patent(s) expire.
When do they expire?
I'm not entirely sure. Most patents generally expire 20 years after the filing date. The basic Vanguard Vipers patent was filed in 2001 and would expire in 2021. However, an amended patent was filed in 2005, but I don't know if that would extend the expiration date.

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triceratop
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Fri Aug 03, 2018 12:11 am

Spirit Rider wrote:
Thu Aug 02, 2018 11:14 pm
Chrono Triggered wrote:
Thu Aug 02, 2018 10:11 pm
Spirit Rider wrote:
Thu Aug 02, 2018 8:33 pm
triceratop wrote:
Thu Aug 02, 2018 5:38 pm
Because they're straight index mutual funds. Existing Fidelity index products of this kind regularly distribute capital gains to investors.
Until Vanguard's patent(s) expire.
When do they expire?
I'm not entirely sure. Most patents generally expire 20 years after the filing date. The basic Vanguard Vipers patent was filed in 2001 and would expire in 2021. However, an amended patent was filed in 2005, but I don't know if that would extend the expiration date.
Another thing to remember, and I'm sure you do realize this but just to say, that's only a necessary condition for Fidelity to be able to offer ETF/mutual share class funds. They have to actually want to add this capability. How many investors opt away from Fidelity index funds because of tax efficiency?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

gostars
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by gostars » Fri Aug 03, 2018 2:46 am

triceratop wrote:
Fri Aug 03, 2018 12:11 am
Another thing to remember, and I'm sure you do realize this but just to say, that's only a necessary condition for Fidelity to be able to offer ETF/mutual share class funds. They have to actually want to add this capability. How many investors opt away from Fidelity index funds because of tax efficiency?
Lots of us, especially since the iShares ETFs are commission-free and are some of the most tax-efficient options out there. If Fidelity could match that I'd have no problems using their MFs in taxable or using the in-house ETF versions as another TLH partner with Vanguard, iShares, and Schwab.

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