Fidelity zero cost funds

[corn18]

Is that stated somewhere on the Fidelity site or in a press release? I don't see it. I had a hard time locating the new funds - had to do a search.

Sounds like I will stay with the existing S&P index fund and I will need to compare the new zero expense total market fund with the total market fund with the management expense.

Saw it over on bogleheads

 

[Another Reader]

And what expense ratios are the same? The regular index and premium index still have different expense ratios, with the premium much lower, and they are not zero.

Why would they merge funds?

I just checked. The expenses are now the same on both classes.

ETA: I can't search on the new total market, FZROX to get management information. The funds open on Friday, so we will see then.

 

[audreyh1]

I just checked. The expenses are now the same on both classes.

OK - when I looked earlier I was seeing different ERs.

But you are right, the regular Index funds are showing the same prices as the premium.

https://www.fidelity.com/mutual-funds/fidelity-funds/why-index-funds

It was confusing, because in this new Fidelity article they only mentioned their premium funds when comparing to Vanguard:
https://www.fidelity.com/mutual-funds/investing-ideas/index-funds

 

[Another Reader]

OK - when I looked earlier I was seeing different ERs.

But you are right, the regular Index funds are showing the same prices as the premium.

https://www.fidelity.com/mutual-funds/fidelity-funds/why-index-funds

It was confusing, because in this new Fidelity article they only mentioned their premium funds when comparing to Vanguard:
https://www.fidelity.com/mutual-funds/investing-ideas/index-funds

And both classes have no minimum to invest. My guess is they will consolidate the fund classes.

 

[audreyh1]

And both classes have no minimum to invest. My guess is they will consolidate the fund classes.

Oh, I thought you were talking about them merging with the new zero funds.

 

[Chuckanut]

A few weeks ago I read an article about the 0% funds. Supposedly, they were going to earn their money by doing things such as lending securities to others, etc. I have no idea how that works and I may be completely misunderstanding what I read.

 

[Another Reader]

Oh, I thought you were talking about them merging with the new zero funds.

No, I think the indexes might be slightly different (not clear to me yet) and these funds are only open to retail investors at this point.

 

[audreyh1]

No, I think the indexes might be slightly different (not clear to me yet) and these funds are only open to retail investors at this point.

It's different fund companies managing them - Fidelity in-house versus Geode Capital Management. At least one of them is essentially the same I would think - Total Stock Market. But merging doesn't seem straightforward.

Thus my confusion about this discussion of merging. I didn't realize you and corn18 were talking about merging of the premium and non-premium index funds.

 

[corn18]

I doubt they will merge anything into the new funds.

 

[Another Reader]

It's different fund companies managing them - Fidelity in-house versus Geode Capital Management. At least one of them is essentially the same I would think - Total Stock Market. But merging doesn't seem straightforward.

Thus my confusion about this discussion of merging. I didn't realize you and corn18 were talking about merging of the premium and non-premium index funds.

I'm reserving judgement about the index and the management until August 3, when they open for trading. All the details should be available then.

 

[samclem]

I'd be more willing to take a chance on this inside a tax-advantaged account. If Fido decides in a year or two that this is an unsustainable bad idea and hikes ERs to .5%, I'd want to be able to bail without tax consequences.

For my taxable accounts, they'd stay at Vanguard. They have a long history of low ERs, it's what they built the company on, their corporate structure encourages it, it's not a flavor-of-the-month.

 

[MRG]

I doubt they will merge anything into the new funds.

+1000

 

[audreyh1]

I liked the high minimums of the Premium Index funds because I thought it kept trading costs down by reducing movements of money in and out of the funds. I don't know how I feel about this change.

I don't think these kinds of trading costs are reflected in the ER. I think they just reduce the return.

 

[DrRoy]

I met with a Fido rep (who was nothing more than a dishonest Salesperson) who tipped me off that this was coming.

I wonder if Fido reps are being pushed more to sell products like actively managed portfolios?

I just wanted to mention that my Fido rep will sometimes suggest something that I find I am not interested in, but he is never pushy and I am happy with him. Individuals can certainly vary, of course.

 

[mrWinter]

My megacorp has retirement plans managed by fideilty. Wonder if we'll get these 0% funds made available to our currently very limited options. The current stuff isn't open market funds, no ticker symbol.

 

[audreyh1]

I just wanted to mention that my Fido rep will sometimes suggest something that I find I am not interested in, but he is never pushy and I am happy with him. Individuals can certainly vary, of course.

Mine would occasionally suggest what I considered off the wall mutual funds, but was never pushy, and never suggested higher priced Fidelity products.

I used to get an annual “checkup “ type call. But they leave me alone completely now.

 

[eytonxav]

I guess we can enjoy it while it lasts, but these firms do have costs and FIdo and Schwab at least need to make some profits for their shareholders.

Shareholders?? Fidelity is privately owned.

 

[pablo]

The correct answer here is: Securities lending income. In the institutional investor world securities lending income when done on a large scale is enormous and would easily dwarf the typical management fee of an index fund. So yes, you can certainly have negative management fees if the securities lending income is large enough.


For those not familiar with the concept, securities are lent by custodians to other clients. Why are securities lent? Think about the case of selling a security short - you sell a security you don't own. Well, where DID the broker come up with the security sold? In many cases, they need to go out and find, or borrow the security from somewhere else. A fee is paid for that security. The security is then returned. It gets more complicated in the finer details, and it is not a riskless endeavor but that is the summary.

 

[audreyh1]

The correct answer here is: Securities lending income. In the institutional investor world securities lending income when done on a large scale is enormous and would easily dwarf the typical management fee of an index fund. So yes, you can certainly have negative management fees if the securities lending income is large enough.


For those not familiar with the concept, securities are lent by custodians to other clients. Why are securities lent? Think about the case of selling a security short - you sell a security you don't own. Well, where DID the broker come up with the security sold? In many cases, they need to go out and find, or borrow the security from somewhere else. A fee is paid for that security. The security is then returned. It gets more complicated in the finer details, and it is not a riskless endeavor but that is the summary.

My understanding is that when you loan a security, dividends are no longer qualified. (The person shorting has to pay back the dividends to the loaner - but that is not treated as qualified dividends).

 

[Cobra9777]

Mine would occasionally suggest what I considered off the wall mutual funds, but was never pushy, and never suggested higher priced Fidelity products.

I used to get an annual “checkup “ type call. But they leave me alone completely now.

Same here. No PCG phone call or email in 2-3 years. Previously, they called once or twice per year to "check in." Never once did they suggest I buy anything. Mostly they wanted to talk about my RIP inputs, which usually resulted in me listing off all the things I thought they should do to improve the system. Maybe they got tired of hearing my list, or just concluded I didn't need any help.

We own a 50/50 mix of very low-ER Vanguard and iShares ETFs and house it all at Fidelity. I'm not interested in mutual finds due to the capital gain distributions.

 

[DEC-1982]

If it seems too good to be true ...

My sentiments exactly !!!

 

[pablo]

My understanding is that when you loan a security, dividends are no longer qualified. (The person shorting has to pay back the dividends to the loaner - but that is not treated as qualified dividends).

That is generally correct.

 

[corn18]

My sentiments exactly !!!

I'll let time decide whether the 0% ER funds are any good or not, but I am very happy that the ERs on my current FIDO index funds were reduced and all the other fees went to zero. If I were at VG, I wouldn't switch to FIDO to save $100 a year on $1M invested, but I will be happy to have an extra $100 at the end of the year since I am already with FIDO.

I'm sure that's not what the FIDO folks would want to hear.

 

[pablo]

My understanding is that when you loan a security, dividends are no longer qualified. (The person shorting has to pay back the dividends to the loaner - but that is not treated as qualified dividends).

When a large fund wants to maximize their securities lending income while retaining the qualified dividends, they have a program in place that ensures that they recall any loaned security in order to be the owner of record to get the dividend paid. A similar maneuver is used to recall loaned securities in order to be the owner of record to vote the proxies.

 

[Dtail]

I'll let time decide whether the 0% ER funds are any good or not, but I am very happy that the ERs on my current FIDO index funds were reduced and all the other fees went to zero. If I were at VG, I wouldn't switch to FIDO to save $100 a year on $1M invested, but I will be happy to have an extra $100 at the end of the year since I am already with FIDO.

I'm sure that's not what the FIDO folks would want to hear.

+1 with my Fidelity funds.
However since my funds at Fidelity are in a TIRA, what could be the downside of potentially switching to the zero funds? No tax situation.
I already have the Int'l (premium) index fund plus my other index funds to some extent mimic a total market US only index fund.