Fidelity Investments is set to again send shock waves through the the index fund and mutual fund industry with the debut of a pair of no-fee index funds. The move follows last months introduction of the first zero-fee funds as the fund giant eliminated investment minimums on mutual funds along with account minimums and related fees.
The moves worked. A little more than a month on the market, the Fidelity ZERO Total Market Index Fund (FZROX) and the Fidelity ZERO International Index Fund (FZILX) have over $1 billion in combined assets under management. Those funds track benchmarks created by Fidelity, a move that helps funds issuers keep costs low.
On Wednesday, Sept. 12, the company said it is preparing to launch another pair of no-fee index funds. The Fidelity ZERO Large Cap Index Fund (FNILX) and Fidelity ZERO Extended Market Index Fund (FZIPX) are expected to debut on Sept. 18.
"In addition to offering the industry's first self-indexed mutual funds with a zero expense ratio, Fidelity is reducing the pricing on its existing stock and bond index mutual funds," said Fidelity in a statement. "Fidelity will provide investors the lowest priced share class available, ensuring every investor, regardless of how much they invest, will benefit from the lowest possible fees." (See also: Fidelity Announces New Zero Expense Ratio Funds.)
"Fidelity's ZERO funds, the only zero expense ratio index mutual funds available directly to individual investors, now provide market exposures representative of over two-thirds of industry index assets, giving investors the broader choice of market coverage they need," said Fidelity in a statement. (For more, see: Fidelity Investments to Overhaul Fees It Charges Customers.)
FNILX will offer investors exposure to a broad basket of domestic large-cap stocks, while FZIPX will provide exposure to mid- and small-cap domestic stocks. Extended market funds are often used by investors to fill in the void of smaller stocks created by many traditional large-cap-heavy broad market equity funds. The Vanguard and Charles Schwab funds that Fidelity's FNILX will compete against have annual expense ratios of 0.14% and 0.03%, respectively, according to Fidelity data. A Vanguard extended market index fund has an annual fee of 0.21%, according to Fidelity data.
Fidelity said that, as its index fund assets have doubled, it has slashed expenses by 50% to give investors more value. The firm has a growing exchange-traded funds (ETFs) footprint as well, through which it offers the industry's least expensive sector ETFs as well as several cost-effective smart beta funds. (See also: How Fidelity Aims for Dominance in the ETF Space.)