Zero-ER Fidelity Funds [Closed to new investors?]

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crumbone
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Zero-ER Fidelity Funds [Closed to new investors?]

Post by crumbone » Thu Sep 20, 2018 10:47 pm

I keep trying to buy FZILX and the Fido site says both it and FZROX are closed to new investors. Does anyone know anything about this?

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jhfenton
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Re: Zero-ER Fidelity Funds

Post by jhfenton » Fri Sep 21, 2018 7:24 am

What kind of account are you trying to buy them in? They are only available in Fidelity retail brokerage accounts. You can not buy them at other brokers, and from what I've read you cannot buy them inside Fidelity BrokerageLink 401(k) accounts.

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Re: Zero-ER Fidelity Funds

Post by moshe » Fri Sep 21, 2018 7:38 am

Why do you want to buy these funds?

Why not stick with iShares S&P 1500 (ITOT) which they sell at the Bid/Ask spread without commission and feature a low ER of 0.03% ($.30 per $1000).

If you walk into the poker room and you can't instantly identify the "phish".. it is you. What is free is often not cheap.

~Moshe
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams

crumbone
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Fidelity zero ER funds closed?

Post by crumbone » Fri Sep 21, 2018 10:51 pm

[Thread merged into here, see below. --admin LadyGeek]

I keep trying to buy FZILX and FZROX (the zero-ER fidelity funds) and Fido's site says they are closed to new investment. Anyone know about this? Are they truly closed?

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Re: Fidelity zero ER funds closed?

Post by runner3081 » Fri Sep 21, 2018 11:02 pm


clown
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Re: Fidelity zero ER funds closed?

Post by clown » Sat Sep 22, 2018 12:35 am

I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.

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Re: Zero-ER Fidelity Funds

Post by UpperNwGuy » Sat Sep 22, 2018 3:07 am

moshe wrote:
Fri Sep 21, 2018 7:38 am
Why do you want to buy these funds?

Why not stick with iShares S&P 1500 (ITOT) which they sell at the Bid/Ask spread without commission and feature a low ER of 0.03% ($.30 per $1000).

If you walk into the poker room and you can't instantly identify the "phish".. it is you. What is free is often not cheap.

~Moshe
What does this comment mean? Please elaborate.
Retiree with a pension and a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

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Re: Fidelity zero ER funds closed?

Post by UpperNwGuy » Sat Sep 22, 2018 3:08 am

clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
Why is that a problem?
Retiree with a pension and a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

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Re: Fidelity zero ER funds closed?

Post by jumppilot » Sat Sep 22, 2018 3:13 am

UpperNwGuy wrote:
Sat Sep 22, 2018 3:08 am
clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
Why is that a problem?

Vanguard funds often beat their index due to income they receive from lending shares. These new Fidelity Zero funds may not partake in the same revenue sharing arrangement.

So even though the Fidelity fund is free, it may under perform Vanguard.

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jhfenton
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Re: Fidelity zero ER funds closed?

Post by jhfenton » Sat Sep 22, 2018 5:39 am

crumbone wrote:
Fri Sep 21, 2018 10:51 pm
I keep trying to buy FZILX and FZROX (the zero-ER fidelity funds) and Fido's site says they are closed to new investment. Anyone know about this? Are they truly closed?
I’ll repeat my question from your other thread: What kind of account are you trying to buy them in? They are only available in Fidelity retail brokerage accounts. You can not buy them at other brokers, and from what I've read you cannot buy them inside Fidelity BrokerageLink 401(k) accounts.

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Re: Fidelity zero ER funds closed?

Post by crumbone » Sat Sep 22, 2018 6:20 am

It's a standard taxable brokerage account at Fidelity.
Last edited by crumbone on Sat Sep 22, 2018 6:22 am, edited 2 times in total.

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Re: Fidelity zero ER funds closed?

Post by Call_Me_Op » Sat Sep 22, 2018 6:20 am

I am quite sure that Fidelity would not close these funds - certainly not a month after that were opened.
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crumbone
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Re: Fidelity zero ER funds closed?

Post by crumbone » Sat Sep 22, 2018 6:23 am

Call_Me_Op wrote:
Sat Sep 22, 2018 6:20 am
I am quite sure that Fidelity would not close these funds - certainly not a month after that were opened.
As am I, which is why I posted-- I'll have to call Customer Service to try and figure out what's going on.

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Re: Fidelity zero ER funds closed?

Post by oldcomputerguy » Sat Sep 22, 2018 6:25 am

Typically, when a Fidelity fund is closed to new investors, the web site explicitly indicates such (for example, FCPGX Small Cap Growth Fund). This is indicated pretty obviously by the "Closed to new investors" in red letters right under the fund name. Neither FZILX nor FZROX shows this indication.

So far FZILX has $234M in assets, and FZROX has $753M, compared to (for example) $165B for FUSVX (S&P500 Premium class), so I don't think they'd be inclined just yet to pull the plug.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: Zero-ER Fidelity Funds

Post by jimmac9 » Sat Sep 22, 2018 7:07 am

If he wants to buy them, he wants to buy them. I also read that they are only available in a brokerage account. Haven't tried buying them in my IRA, but if they are available on Jan 1, I will

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Re: Zero-ER Fidelity Funds

Post by wudged » Sat Sep 22, 2018 7:15 am

I was able to make a small purchase of FZROX in a Roth IRA.

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Re: Zero-ER Fidelity Funds

Post by moshe » Sat Sep 22, 2018 7:57 am

Hi UpperNwGuy,

My general concern is that these funds are new so like a new restaurant there is no history to rely upon. Like the new restaurant my nature says to stay away for a year or so and see if it survives and how it does against its peers in terms of performance and turnover, which as you may know, is a very important consideration when purchasing for a taxable account.

My specific concerns are:
1) it uses a new index which Fidelity created. What rules did they use to create this index? To update the index? Do the indexes members reflect the reality of the market or do they benefit Fidelity or both?
2) is the fund large and stable enough to not cause excess taxable events when the markets turn and they are hit with redemptions?
3) if they arn't charging me then how are they making money on this product? You might say this the problem of the investor but i disagree. Fidelity is not in business to lose money.

If i have learned something in life it is that if something sounds too good to be true caution is called for. Watch a few episodes of American Greed if you need to get what i mean :-)

Best,
~Moshe
UpperNwGuy wrote:
Sat Sep 22, 2018 3:07 am
moshe wrote:
Fri Sep 21, 2018 7:38 am
Why do you want to buy these funds?

Why not stick with iShares S&P 1500 (ITOT) which they sell at the Bid/Ask spread without commission and feature a low ER of 0.03% ($.30 per $1000).

If you walk into the poker room and you can't instantly identify the "phish".. it is you. What is free is often not cheap.

~Moshe
What does this comment mean? Please elaborate.
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams

UpperNwGuy
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Re: Zero-ER Fidelity Funds

Post by UpperNwGuy » Sat Sep 22, 2018 8:16 am

moshe wrote:
Sat Sep 22, 2018 7:57 am
Hi UpperNwGuy,

My general concern is that these funds are new so like a new restaurant there is no history to rely upon. Like the new restaurant my nature says to stay away for a year or so and see if it survives and how it does against its peers in terms of performance and turnover, which as you may know, is a very important consideration when purchasing for a taxable account.

My specific concerns are:
1) it uses a new index which Fidelity created. What rules did they use to create this index? To update the index? Do the indexes members reflect the reality of the market or do they benefit Fidelity or both?
2) is the fund large and stable enough to not cause excess taxable events when the markets turn and they are hit with redemptions?
3) if they arn't charging me then how are they making money on this product? You might say this the problem of the investor but i disagree. Fidelity is not in business to lose money.

If i have learned something in life it is that if something sounds too good to be true caution is called for. Watch a few episodes of American Greed if you need to get what i mean :-)

Best,
~Moshe
UpperNwGuy wrote:
Sat Sep 22, 2018 3:07 am
moshe wrote:
Fri Sep 21, 2018 7:38 am
Why do you want to buy these funds?

Why not stick with iShares S&P 1500 (ITOT) which they sell at the Bid/Ask spread without commission and feature a low ER of 0.03% ($.30 per $1000).

If you walk into the poker room and you can't instantly identify the "phish".. it is you. What is free is often not cheap.

~Moshe
What does this comment mean? Please elaborate.
Your first two reasons make sense to me. Your third does not. And I find your poker room analogy to be insulting. A smart investor can take advantage of a for-profit brokerage's loss leaders without getting enticed into higher priced offerings. If Fidelity wants to lose money on these funds (which is by no means a given) to attract new investors, then that's their business, not mine. A smart consumer always takes advantage of loss leaders, be it in the stock market, the grocery store, or wherever.
Retiree with a pension and a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

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Re: Zero-ER Fidelity Funds

Post by moshe » Sat Sep 22, 2018 8:35 am

And I am insulted that your "please elaborate..." comment was disingenuous so we are even. :beer

~Moshe

UpperNwGuy wrote:
Sat Sep 22, 2018 8:16 am
moshe wrote:
Sat Sep 22, 2018 7:57 am
Hi UpperNwGuy,

My general concern is that these funds are new so like a new restaurant there is no history to rely upon. Like the new restaurant my nature says to stay away for a year or so and see if it survives and how it does against its peers in terms of performance and turnover, which as you may know, is a very important consideration when purchasing for a taxable account.

My specific concerns are:
1) it uses a new index which Fidelity created. What rules did they use to create this index? To update the index? Do the indexes members reflect the reality of the market or do they benefit Fidelity or both?
2) is the fund large and stable enough to not cause excess taxable events when the markets turn and they are hit with redemptions?
3) if they arn't charging me then how are they making money on this product? You might say this the problem of the investor but i disagree. Fidelity is not in business to lose money.

If i have learned something in life it is that if something sounds too good to be true caution is called for. Watch a few episodes of American Greed if you need to get what i mean :-)

Best,
~Moshe
UpperNwGuy wrote:
Sat Sep 22, 2018 3:07 am
moshe wrote:
Fri Sep 21, 2018 7:38 am
Why do you want to buy these funds?

Why not stick with iShares S&P 1500 (ITOT) which they sell at the Bid/Ask spread without commission and feature a low ER of 0.03% ($.30 per $1000).

If you walk into the poker room and you can't instantly identify the "phish".. it is you. What is free is often not cheap.

~Moshe
What does this comment mean? Please elaborate.
Your first two reasons make sense to me. Your third does not. And I find your poker room analogy to be insulting. A smart investor can take advantage of a for-profit brokerage's loss leaders without getting enticed into higher priced offerings. If Fidelity wants to lose money on these funds (which is by no means a given) to attract new investors, then that's their business, not mine. A smart consumer always takes advantage of loss leaders, be it in the stock market, the grocery store, or wherever.
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams

Whakamole
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Re: Fidelity zero ER funds closed?

Post by Whakamole » Sat Sep 22, 2018 8:37 am

It's letting me buy, or at least I'm getting as far as the "confirm trade" screen. No notification for me either.

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Re: Zero-ER Fidelity Funds

Post by terran » Sat Sep 22, 2018 8:53 am

jhfenton wrote:
Fri Sep 21, 2018 7:24 am
What kind of account are you trying to buy them in? They are only available in Fidelity retail brokerage accounts. You can not buy them at other brokers, and from what I've read you cannot buy them inside Fidelity BrokerageLink 401(k) accounts.
This.

I get the same message the OP describes in my Fidelity solo 401(k). These funds are only available to Fidelity retail investors (so FIdelity IRA or brokerage accounts).

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Re: Zero-ER Fidelity Funds

Post by dachshunddad » Sat Sep 22, 2018 9:00 am

I had similar issue and called fidelity. Essentially it is for individual investor accounts. For example my 401k is structured as non prototype so not eligible. But I bought in the Roth. If it won’t let you buy it’s because the structure is not eligible. But you can now buy the institutional index at no minimum at near zero cost so i would consider that.

sc9182
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Re: Zero-ER Fidelity Funds

Post by sc9182 » Sat Sep 22, 2018 9:08 am

I could buy/execute-order just fine, no problems. I did order thru Fidelity brokerage, as this was a requirement.
crumbone wrote:
Thu Sep 20, 2018 10:47 pm
I keep trying to buy FZILX and the Fido site says both it and FZROX are closed to new investors. Does anyone know anything about this?
-- regarding other noise in this thread --

Moshe: not sure you are adding value to this conversation, or simply suggesting go buy something else becuase you personally prefer those? Also, investing is, especially long term, risk adjusted one., is not to be confused with Poker/gamblimg or you should compared with it!

Most of zero cost or low cost popular passive index products been doing just fine. Don't see merit to your point.

Most importantly, these Fidelity funds now provide a way for small investors, smallish accounts to be able to participate early in the investing, without needing to sit out delay/waiting to build larger required-minimums as imposed by all other funds.

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Re: Zero-ER Fidelity Funds

Post by moshe » Sat Sep 22, 2018 9:53 am

I apologize if you do not see value in my challenging the assumption that a financial firm would try and take advantage of its clients.
sc9182 wrote:
Sat Sep 22, 2018 9:08 am

Most of zero cost or low cost popular passive index products been doing just fine. Don't see merit to your point.
My point is that just because Fidelity calls it an "Index" does not make it instantly have value or mean it will perform like other older established indexes. Only time will tell.

If this point causes you cognitive dissonance then please take this warning for what you paid for it.

~Moshe
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams

sc9182
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Re: Fidelity zero ER funds closed?

Post by sc9182 » Sat Sep 22, 2018 9:54 am

Buy order just went fine. Did buy from Fidelity brokerage account. No problems.

sc9182
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Re: Zero-ER Fidelity Funds

Post by sc9182 » Sat Sep 22, 2018 10:02 am

moshe wrote:
Sat Sep 22, 2018 9:53 am
I apologize if you do not see value in my challenging the assumption that a financial firm would try and take advantage of its clients.
sc9182 wrote:
Sat Sep 22, 2018 9:08 am

Most of zero cost or low cost popular passive index products been doing just fine. Don't see merit to your point.
My point is that just because Fidelity calls it an "Index" does not make it instantly have value or mean it will perform like other older established indexes. Only time will tell.

If this point causes you cognitive dissonance then please take this warning for what you paid for it.

~Moshe
Moshe, your argument is a non starter. You are now saying - new index may not perform as good as older indexes (or it may, you couldn't be clear your self, non-affirmative). But in earlier posting, you could confirm some other Indexes or ETFs would be/perform better.

"cognitive dissonance" - figure this one for yourself., no judging required.

Again "noise aside" - to add value to this thread and to OP, yes. could buy those funds via Fidelity brokerage as I could.

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Re: Zero-ER Fidelity Funds

Post by ruralavalon » Sat Sep 22, 2018 10:29 am

crumbone wrote:
Thu Sep 20, 2018 10:47 pm
I keep trying to buy FZILX and the Fido site says both it and FZROX are closed to new investors. Does anyone know anything about this?
According to the prospectus shares are only available to individual retail investors and only in certain Fidelity accounts.

"Shares of the fund are only available to individual retail investors who purchase their shares through a Fidelity brokerage account, including retail non-retirement accounts, retail retirement accounts (traditional, Roth and SEP Individual Retirement Arrangements (IRAs)), health savings accounts (HSAs), and stock plan services accounts."
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Zero-ER Fidelity Funds [Closed to new investors?]

Post by LadyGeek » Sat Sep 22, 2018 10:58 am

crumbone - You had a duplicate thread which I've merged into here. The combined thread is now in the Investing - Theory, News & General forum.

========
With regards to previous posts - Please state your concerns in a civil, factual manner.
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crumbone
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Re: Fidelity zero ER funds closed?

Post by crumbone » Sat Sep 22, 2018 11:30 pm

jumppilot wrote:
Sat Sep 22, 2018 3:13 am
UpperNwGuy wrote:
Sat Sep 22, 2018 3:08 am
clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
Why is that a problem?

Vanguard funds often beat their index due to income they receive from lending shares. These new Fidelity Zero funds may not partake in the same revenue sharing arrangement.

So even though the Fidelity fund is free, it may under perform Vanguard.
Well aware of these issues, but I have a taxable fidelity account and recently harvested losses on FTIPX. I'd prefer to avoid transaction fees. It's not a big buy, and it's a good TLH partner for FTIPX. I'm dipping a toe; the funds at risk are minimal.

crumbone
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Re: Zero-ER Fidelity Funds

Post by crumbone » Sat Sep 22, 2018 11:38 pm

moshe wrote:
Fri Sep 21, 2018 7:38 am
Why do you want to buy these funds?

Why not stick with iShares S&P 1500 (ITOT) which they sell at the Bid/Ask spread without commission and feature a low ER of 0.03% ($.30 per $1000).

If you walk into the poker room and you can't instantly identify the "phish".. it is you. What is free is often not cheap.

~Moshe
I also watched Rounders.

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Re: Zero-ER Fidelity Funds

Post by Nate79 » Sun Sep 23, 2018 2:08 pm

moshe wrote:
Sat Sep 22, 2018 9:53 am
I apologize if you do not see value in my challenging the assumption that a financial firm would try and take advantage of its clients.
sc9182 wrote:
Sat Sep 22, 2018 9:08 am

Most of zero cost or low cost popular passive index products been doing just fine. Don't see merit to your point.
My point is that just because Fidelity calls it an "Index" does not make it instantly have value or mean it will perform like other older established indexes. Only time will tell.

If this point causes you cognitive dissonance then please take this warning for what you paid for it.

~Moshe
There is no need to rehash these points that have already been extensively discussed in extreme detail in very long past threads when these funds were initiated. A basic site search will find them.

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Re: Zero-ER Fidelity Funds

Post by Agggm » Sun Sep 23, 2018 2:21 pm

moshe wrote:
Fri Sep 21, 2018 7:38 am
Why do you want to buy these funds?

Why not stick with iShares S&P 1500 (ITOT) which they sell at the Bid/Ask spread without commission and feature a low ER of 0.03% ($.30 per $1000).

If you walk into the poker room and you can't instantly identify the "phish".. it is you. What is free is often not cheap.

~Moshe
So you wouldn't consider buying these funds because they are 3bps cheaper than itot but you would consider buying them if they were 2.5bps cheaper?

Agggm
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Re: Fidelity zero ER funds closed?

Post by Agggm » Sun Sep 23, 2018 2:23 pm

clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
They state they'll make money from securities lending. Vanguard funds do this too.

A few years ago there was talk about the possibility of funds having negative expense ratios. So zero ain't a big deal.

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ruralavalon
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Re: Fidelity zero ER funds closed?

Post by ruralavalon » Sun Sep 23, 2018 2:40 pm

Agggm wrote:
Sun Sep 23, 2018 2:23 pm
clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
They state they'll make money from securities lending. Vanguard funds do this too.

A few years ago there was talk about the possibility of funds having negative expense ratios. So zero ain't a big deal.

In addition to securities lending, Fidelity can reduce net operating expenses by using their own proprietary indexes. That way they can avoid paying licensing fees to index creators like S&P, Russell, Bloomberg Barclays, CRSP, MSCI, etc.

Still I doubt that securities lending and no licensing fees are enough to make these funds profitable or even break even propositions at Fidelity.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Agggm
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Re: Fidelity zero ER funds closed?

Post by Agggm » Sun Sep 23, 2018 2:52 pm

jumppilot wrote:
Sat Sep 22, 2018 3:13 am
UpperNwGuy wrote:
Sat Sep 22, 2018 3:08 am
clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
Why is that a problem?

Vanguard funds often beat their index due to income they receive from lending shares. These new Fidelity Zero funds may not partake in the same revenue sharing arrangement.

So even though the Fidelity fund is free, it may under perform Vanguard.
Question.
Is securities lending a revenue share? Or is it interest on a loan of equity?

Fact.
Fido funds do the same thing as vg does with lending since they stated this is how they'll make money in the funds info pages.

Guess.
Fido zeros will probably underperform vg over some periods and outperform over other periods.

Question.
Will it ever be a material difference one way or another?

Fact.
Fido zeros have created their own indicies (as stated...).

Guess.
They probably selected their indicies to be somewhat optimized to keep costs low for their own profitability sake (~at cost? slight profit? slight loss? assuming for synergies with up selling? assuming increasing market share of retirement administration? etc).

Guess.
I don't think anyone can claim vg total us/intl or fido zeros will be superior to one another over rolling 40 year periods. They'll probably be nearly perfectly correlated (0.98ish) in the long run.

Fact.
One thing is sure, fido zeros, have a zero expense ratio. Which is less than all other major funds (note, there have been zero ER funds available only to specific investors in the past and I held such a fund... it was an actively managed small cap growth fund which frequently outperformed that crummy small cap growth index).

Guess.
So if fido selected an index identical to vg, and perform as well with lending, fido should outperform by 4bp (us) to 10bp (intl) per year.

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Re: Fidelity zero ER funds closed?

Post by Agggm » Sun Sep 23, 2018 2:57 pm

ruralavalon wrote:
Sun Sep 23, 2018 2:40 pm
Agggm wrote:
Sun Sep 23, 2018 2:23 pm
clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
They state they'll make money from securities lending. Vanguard funds do this too.

A few years ago there was talk about the possibility of funds having negative expense ratios. So zero ain't a big deal.

In addition to securities lending, Fidelity can reduce net operating expenses by using their own proprietary indexes. That way they can avoid paying licensing fees to index creators like S&P, Russell, Bloomberg Barclays, CRSP, MSCI, etc.

Still I doubt that securities lending and no licensing fees are enough to make these funds profitable or even break even propositions at Fidelity.
As a stand alone set of 2 funds, maybe not (but I don't work for fido so I can't comment on their profit models).

But it is possible that they will get into other areas such as competing for retirement admin, up selling high margin products to new customers, etc.

It's a long term play and I bet they won't be the last to go to zero.

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Re: Fidelity zero ER funds closed?

Post by Agggm » Sun Sep 23, 2018 3:01 pm

ruralavalon wrote:
Sun Sep 23, 2018 2:40 pm
Agggm wrote:
Sun Sep 23, 2018 2:23 pm
clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
They state they'll make money from securities lending. Vanguard funds do this too.

A few years ago there was talk about the possibility of funds having negative expense ratios. So zero ain't a big deal.

In addition to securities lending, Fidelity can reduce net operating expenses by using their own proprietary indexes. That way they can avoid paying licensing fees to index creators like S&P, Russell, Bloomberg Barclays, CRSP, MSCI, etc.

Still I doubt that securities lending and no licensing fees are enough to make these funds profitable or even break even propositions at Fidelity.
At a prior job I had, we licensed the sp500 index. The cost was 2bp. So, that's a number. If Itot is profitable at 3bp - 2bp = 1bp, to say 0bp is unprofitable is reaching a bit. Either both are profitable or both aren't. So any concerns we have about fido zeros we should also have about itot and the rest of the tiny cost funds.

euroswiss
Posts: 207
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Re: Fidelity zero ER funds closed?

Post by euroswiss » Sun Sep 23, 2018 4:14 pm

Agggm wrote:
Sun Sep 23, 2018 3:01 pm
ruralavalon wrote:
Sun Sep 23, 2018 2:40 pm
Agggm wrote:
Sun Sep 23, 2018 2:23 pm
clown wrote:
Sat Sep 22, 2018 12:35 am
I'm skeptical that we know all we should about the Zero ER funds. Unless Fido is content to have a product with zero income and some level of expense, an extremely doubtful scenario, then they are making money somewhere that is not apparent.
They state they'll make money from securities lending. Vanguard funds do this too.

A few years ago there was talk about the possibility of funds having negative expense ratios. So zero ain't a big deal.

In addition to securities lending, Fidelity can reduce net operating expenses by using their own proprietary indexes. That way they can avoid paying licensing fees to index creators like S&P, Russell, Bloomberg Barclays, CRSP, MSCI, etc.

Still I doubt that securities lending and no licensing fees are enough to make these funds profitable or even break even propositions at Fidelity.
At a prior job I had, we licensed the sp500 index. The cost was 2bp. So, that's a number. If Itot is profitable at 3bp - 2bp = 1bp, to say 0bp is unprofitable is reaching a bit. Either both are profitable or both aren't. So any concerns we have about fido zeros we should also have about itot and the rest of the tiny cost funds.
Well said!

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oldcomputerguy
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Re: Fidelity zero ER funds closed?

Post by oldcomputerguy » Sun Sep 23, 2018 4:56 pm

Agggm wrote:
Sun Sep 23, 2018 3:01 pm
At a prior job I had, we licensed the sp500 index. The cost was 2bp.
Not bad. According to this article on Motley Fool, State Street pays Standard & Poor 0.03% of AUM plus $600,000 annually for licensing the S&P 500 index for its SPY ETF.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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