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Wednesday, May 28, 2008

Fido Tries to Board the Vanguard Ship

News summary by MFWire's editors

Fidelity is ribbing Vanguard with a series of new ads. The Financial Times reports that the Boston company has begun running a new series of ads carrying the header "Attention Vanguard Index Fund Owners: Fidelity has index funds with lower expenses."

According to the article, Fidelity's index fund assets were $85 billion as of April of this year, a drop in the pot of the firm's $1.356 trillion in total assets.

Fidelity, traditionally a actively managed fund shop, may be shifting its focus due to the slowing inflows into its funds. In 2007, according to FRC data, the company saw a net $3.47 billion flow into its funds, down from $13.26 billion in 2006. This data does not include money-market fund flows which were $86.1 billion in 2007, up from $60 billion in 2006, according to company data.

A Vanguard spokesperson told FT that Fidelity is basically comparing apples and oranges because the minimum and subsequent investemnt requirements on the each company's funds are so different. (Vanguard requires a $3000 initial investment and $100 subsequently and Fidelity requires a $10,000 buy-in with $1000 subsequent investments.)

That argument is a little different than the one made in 2004 when Fidelity first cut the fees on its index funds to match Vanguard. At that time, Vanguard officials pointed out that some indexers were cutting fees on a temporary basis. Fidelity made the management fee cuts on its index funds permanent in 2005.  

Edited by: Erin Kello

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