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Fidelity Tries Luring Investors With 2 No-Fee Funds. So What’s the Catch?

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BlackRock, which has a huge E.T.F. business under the iShares name that competes in part with retail index funds, offers an E.T.F. that tracks the domestic stock market at a cost of 0.03 percent of assets. Martin Small, who leads BlackRock’s iShares business in the United States and Canada, said the firm had “zero plans” for a zero-fee E.T.F.

A Schwab spokeswoman declined to say whether the firm would make further changes to its prices. “Any time costs go down, investors win,” the spokeswoman said in a statement. She said Schwab was “laser focused” on straightforward, low-cost products that could be sold broadly to many investors “so we can continue to pass the benefits of our scale” to them.

Vanguard, whose mutual fund shareholders effectively own the company, said it was structured to lower the cost and complexity of investing in all of its funds, indexed and actively managed, for all of its customers.

“This is now a game of inches, with firms trying to gain supremacy one basis point at a time,” Mr. Ptak of Morningstar said.

The difference can be counted in pennies. Fidelity’s free domestic fund, for example, competes with Schwab’s Total Stock Market Index fund, which charges just 0.03 percent of assets, or 3 cents for every $100 invested; Vanguard’s Total Stock Market Fund, which, depending on the amount invested, ranges from 0.02 percent of assets, or 2 cents per $100, to 0.14 percent of assets.

“If you examine the recent history, we’ve had Schwab, Vanguard and Fidelity all make moves to try to gain an edge by removing fees and barriers,” Mr. Ptak added. “We’re now at a point of diminishing returns, so these firms will have to find other ways to differentiate, but it’s shaping up as a slugfest, with these firms trading blows.”

For now, consumers appear to be winning that fight.


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