Fidelity Investments announced two moves last week that are expected to help the company re-capture market share, according to Morningstar columnist Russel Kinnel. The Boston-based fund giant said it will make its index-fund fee cuts permanent. It also said it would appoint two managers to run independent portions of its Mid-Cap Stock portfolio.
"The firm is really just sticking to the thing that most defines Fidelity: competitiveness," says Kinnel. He notes that in the mid-1990s, Fidelity invested heavily in its struggling bond group. Now, those funds rank among the top in their categories.
Fidelity's fee cuts come at a time of somewhat intense price-cutting wars among mutual fund companies. "Fidelity is willing to sacrifice some profits in order to gain market share in the index-fund business and to ward off challengers who could use index funds to make inroads on Fidelity's core business of actively managed funds," says Kinnel.
While Fidelity's index funds, with expense ratios of just 0.10%, work well for tax-sheltered accounts, its funds lose to those of low cost ETFs and Vanguard when it comes to taxable accounts.
Fidelity's decision to employ two managers to operate one fund breaks away from the long-held tradition of a company that has created star managers by assigning one manager to one fund. Kinnel says the reason for this is that Fidelity's Mid-Cap Stock is an important fund for the company.
Unlike its New Millenium fund, which is now closed, and Aggressive Growth fund, which has seen poor returns, Fidelity hopes that by beefing up operations for Mid-Cap Stock, it can give the fund greater capacity to grow without having to close the fund.