Fidelity announced 10-for-1 fund splits in certain mutual funds

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oldcomputerguy
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Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by oldcomputerguy » Tue Aug 07, 2018 9:58 am

Fidelity has announced a 10-for-1 split in several of their mutual funds, effective at close of market on August 10th.

The funds affected are:

Fidelity Contrafund® FCNTX
Fidelity Contrafund® - Class K FCNKX
Fidelity Growth Company Fund FDGRX
Fidelity Growth Company Fund - Class K FGCKX
Fidelity Magellan® Fund FMAGX
Fidelity Magellan® Fund - Class K FMGKX
Select Biotechnology Portfolio FBIOX
Select Chemicals Portfolio FSCHX
Select Defense and Aerospace Portfolio FSDAX
Select Financial Services Portfolio FIDSX
Select Health Care Portfolio FSPHX
Select Leisure Portfolio FDLSX
Select Technology Portfolio FSPTX
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: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by bloom2708 » Tue Aug 07, 2018 2:51 pm

Is this split purely psychological?

I've always thought the NAV is quite meaningless. $1 or $10 or $100 or $300. It doesn't mean anything other than what 1 unit is valued at.

Do they want the NAV to seem "cheaper"? Better value?

If you had $1,000 before, now you have $1,000. Win-win split I guess.
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GrowthSeeker
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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by GrowthSeeker » Tue Aug 07, 2018 9:39 pm

Since most investments into Mutual Funds are by dollar amount, then unless I'm missing something, a split of a Mutual Fund share makes absolutely no sense from a financial point of view. So what could be the underlying reason?
- someone at Fidelity has severe OCD and they want all the funds to be around $10 per share. As Monk would say: "it's more fun".
- they think this will attract attention and dollars from those new to investing that don't know any better: they want to get more dumb dollars. Perhaps that cohort of investors is more likely to avail themselves of their Robo advisor or other services.
- some vice president at Fidelity or other middle to upper management type wrote this up as the next "big idea" in order to justify his/her own existence and hopefully receive a bonus.
Just because you're paranoid doesn't mean they're NOT out to get you.

Jablean
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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by Jablean » Wed Aug 08, 2018 1:45 am

Better alignment with comparison funds? - Seems to be a regular thing, they've done it before.

Q5: Why did Fidelity decide to do share splits?
A: Fidelity made this change for operational purposes. The firm launches most funds with
an initial NAV of $10.00, which is consistent with market convention for new funds.
Over time, the NAVs on several of our funds have appreciated significantly, above $100
per share. The share splits will better align the NAVs of the funds with their industry
peers. The lower NAVs might also allow for more flexibility for any shareholders who
prefer to buy shares in full, rather than fractional shares.

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by TropikThunder » Wed Aug 08, 2018 2:01 am

Jablean wrote:
Wed Aug 08, 2018 1:45 am
The lower NAVs might also allow for more flexibility for any shareholders who prefer to buy shares in full, rather than fractional shares.
And someone from Fidelity got paid to write that .....

Eric76
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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by Eric76 » Wed Aug 08, 2018 5:00 am

Seems that stock splits are generally out of vogue these days. Apparently Fidelity is trying to make it cool again.

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by Spirit Rider » Wed Aug 08, 2018 5:42 am

While knowledgeable investors know that the NAV is irrelevant. There are still investors who think a mutual fund (especially an active fund) with a lower NAV is a better value. Believe it or not, this will likely result in a short-term uptick in fund inflows.

It is purely a marketing exercise, but is not an unreasonable one. Fidelity Contrafund is more than fifty (50) years old. With a NAV > $100.

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by grok87 » Wed Aug 08, 2018 5:54 am

for etfs higher nav is arguably better as spread is less as % of nav.
Keep calm and Boglehead on. KCBO.

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by nisiprius » Wed Aug 08, 2018 5:54 am

Ah, news I definitely don't need to worry about. I am sure that the only reason this drew any attention at all is because it is a "split," and stock splits are almost, but not entirely unlike news.

Stock splits are not entirely meaningless for two reasons. First, if you hear that a stock "has split X times in the last Y years" it is a way of saying that the stock has been making huge gains quickly. (The split adds nothing, but the need for a split means there have been such huge gains that the price per share got inconveniently high. Like $315,000/share for BRK). Second, if it were still the 1960s, and "odd lot" transactions had to be processed through DeCoppet & Doremus--which added $ 1/4 to the true market price on purchases and subtracted $ 1/4 from sales proceeds. So a sensible person might want to transact only in 100-share "round lots," and occasional splits were needed to keep the price of a round lot affordable. Nowadays I suppose execution quality connoisseurs might be aware of subtle issues with odd-lot transaction following different paths in execution--not everyone willing to sell a round lot is interested in selling an odd lot-- it might still be preferable to buy and sell in round lots, even though nobody is explicitly adding $ 1/4 to sells.

Mutual funds are transacted in any dollar amount the investor wants, so the actual price of a share is pretty irrelevant.
The lower NAVs might also allow for more flexibility for any shareholders who prefer to buy shares in full, rather than fractional shares.
I have to think somebody just made that up. Do you think such shareholders actually exist?

Maybe.

Observation and forum discussions suggest that mutual fund purchases and sales are really made in thousandths of a share, just as they are displayed in Vanguard statements, so, yes, there can be roundoff error when purchasing dollar amounts--a forum member reported placing an order for $10,000 of a fund and receiving only $9999.99--and there have been rambling and inconclusive discussions of this and of fund splits here and on Morningstar where "ooicuryy" called for Vanguard to Split VFINX!.

That was in 2006, don't know if they ever did. The VFINX share price is currently $264.28/share, I see. Apparently it was $122.04 in 2006. So I'm thinking not.

Actually it is strange that mutual fund share quantities are not managed to enough decimal places to guarantee that transactions always match orders to the penny. If you assume that price per share is kept to less than $1,000, it would take, let's see... I think five would do it? Certainly six.
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House Blend
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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by House Blend » Wed Aug 08, 2018 9:55 am

grok87 wrote:
Wed Aug 08, 2018 5:54 am
for etfs higher nav is arguably better as spread is less as % of nav.
+1.

Don't need ETFs to spin this as negative, if that's what folks are trying to accomplish.

Mutual fund pricing is measured in cents, so we can suppose that the price at close is "fair" to within $0.005/share. In that case a 10-for-1 split in shares magnifies the dollar amount of any unfairness in a transaction by a factor of 10. (Insert nitpicks about how it cuts both ways. Central Limit Theorem yadda yadda yadda.)

Using more decimal places to measure share counts doesn't mitigate this.

It would be nice if mutual funds could be priced to 4 decimal places; e.g., $12.3456. I notice that Vanguard recently switched from 3 to 4 decimal places when reporting distributions per share from mutual funds. (They report 5 decimal places, but the 5th seems to always be zero.) I also notice that TIAA uses 4 decimal pricing for its variable annuities.

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by FGal » Wed Aug 08, 2018 1:56 pm

I hold a tiny fraction of FDGRX, from the before times. As it's less than 1% of my portfolio, I justify the continued investment holding as sentiment, while the rest of my portfolio is solidly index funds.

That being said, it is one of the funds that will be doing the split, and I wonder over the possibilities of it increasing in price after said split.

It has been closed to new investors at least the last 5 years I've checked. NAV consistently pretty much consistently on the high end. I assume they are splitting this fund to possibly get the NAV down to "reasonable" levels in preparation to re-open the fund to new investors? Or else what would be the reason for it at all?

Not that I care other than for educational purposes, as I'm not planning on buying more, just interested in how this stuff works.

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by Epsilon Delta » Wed Aug 08, 2018 2:29 pm

nisiprius wrote:
Wed Aug 08, 2018 5:54 am
Actually it is strange that mutual fund share quantities are not managed to enough decimal places to guarantee that transactions always match orders to the penny. If you assume that price per share is kept to less than $1,000, it would take, let's see... I think five would do it? Certainly six.
No six would not do it. It is not an attainable goal. Adding extra decimals cannot eliminate rounding errors.

If Fidelity’s software is believed to give acceptably accurate results with share prices between say $1 and $1000 it is probably easier and cheaper to do the occasional split to keep the price in that range than it is to rewrite the software, the hardest part of which is probably training, sidelining or firing the ****s who think rounding is easy.

(Some of the ****s will be in the executive suite and almost impossible to train, sideline or fire. Which is another reason to leave well enough alone.)

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by MotoTrojan » Thu Aug 09, 2018 8:57 am

Epsilon Delta wrote:
Wed Aug 08, 2018 2:29 pm
nisiprius wrote:
Wed Aug 08, 2018 5:54 am
Actually it is strange that mutual fund share quantities are not managed to enough decimal places to guarantee that transactions always match orders to the penny. If you assume that price per share is kept to less than $1,000, it would take, let's see... I think five would do it? Certainly six.
No six would not do it. It is not an attainable goal. Adding extra decimals cannot eliminate rounding errors.

If Fidelity’s software is believed to give acceptably accurate results with share prices between say $1 and $1000 it is probably easier and cheaper to do the occasional split to keep the price in that range than it is to rewrite the software, the hardest part of which is probably training, sidelining or firing the ****s who think rounding is easy.

(Some of the ****s will be in the executive suite and almost impossible to train, sideline or fire. Which is another reason to leave well enough alone.)
How does increased resolution in number of shares not directly improve the resolution of equivalent dollars?

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by nedsaid » Thu Aug 09, 2018 4:52 pm

I can't wait for the "Why did my Fidelity Fund drop so much in Value?" threads to start popping up. Similar to what happens when funds make capital gains distributions late in the year. I am certain there will be sheer panic in some quarters until they realize they have 10X more shares.
A fool and his money are good for business.

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by oldcomputerguy » Thu Aug 09, 2018 6:09 pm

nisiprius wrote:
Wed Aug 08, 2018 5:54 am
Ah, news I definitely don't need to worry about. I am sure that the only reason this drew any attention at all is because it is a "split," and stock splits are almost, but not entirely unlike news.
Valid point. I didn’t post this thinking in particular that this was “news”. I posted it because I recently got thrown a bit of a curveball by a split. Like some other here, I use a spreadsheet to track my portfolio so that I can tell if it’s time to rebalance. Recently one of the ETFs that DW holds did a 4-to-1 split. It wouldn’t have mattered, but my spreadsheet is built to pull current prices from Google Finance and do the math based on number of shares held. The split screwed up my spreadsheet’s totals. I thought perhaps anyone holding one of the affected funds who also was using a similar spreadsheet might want to know so that they could make whatever adjustments were needed.
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: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by SlowMovingInvestor » Thu Aug 09, 2018 7:02 pm

I remember back in 1999-2000 or so, Janus was touting a new fund with copy like this:

'Buy shares of Fund X during the initial subscription period for only $10 !'
[ The initial subscription period was when the fund would gather assets, prior to doing any purchases]

When I saw one of these ads, my officemate would ask me if I was in pain because I would start screaming loudly :happy

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by Spirit Rider » Thu Aug 09, 2018 7:54 pm

SlowMovingInvestor wrote:
Thu Aug 09, 2018 7:02 pm
I remember back in 1999-2000 or so, Janus was touting a new fund with copy like this:

'Buy shares of Fund X during the initial subscription period for only $10 !'
[ The initial subscription period was when the fund would gather assets, prior to doing any purchases]

When I saw one of these ads, my officemate would ask me if I was in pain because I would start screaming loudly :happy
The sad thing is I almost guarantee that it worked. They generated more share purchases with that ad copy than the would have without it.

I know people that even today will buy shares of a stock or mutual fund because the price is lower than a competitor's. Sometimes you can't fix stupid.

NEInvestor
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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by NEInvestor » Thu Aug 09, 2018 8:01 pm

There are always rounding issues in NAV calcs. I worked in fund valuation for a long time. Most NAVs are rounded to 2 decimals if they trade through the NSCC. If you add up the value of all the assets in a mutual fund and divide by the shares outstanding, you get the NAV which is rounded by the fund company. Some funds strike NAVs to 4 decimals and there are record keepers that track the shares out to 9 decimals to minimize the rounding error. Multi share class can even make the process more tricky.

What is even more interesting is what would happen on a full liquidation of a fund. If the NAV was rounded so the shares outstanding * NAV is greater than the total assets of the fund, who would make the investors whole? These are real issues that trustees deal with as they are on the hook to make investors whole in the event of a full liquidation of a fund(highly unlikely at Fidelity)

My guess is the splits may have something to do with the NAV of the fund and eliminating share classes.

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Re: Fidelity announced 10-for-1 fund splits in certain mutual funds

Post by TropikThunder » Thu Aug 09, 2018 8:07 pm

Spirit Rider wrote:
Thu Aug 09, 2018 7:54 pm
I know people that even today will buy shares of a stock or mutual fund because the price is lower than a competitor's. Sometimes you can't fix stupid.
We see posts like that on here every now and then. :|

"I think I will buy ITOT since VTI is so much more expensive ...."

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