For many investors, Fidelity is known for its actively managed mutual funds. To some extent, that is an accurate assessment. The Boston-based fund giant does offer some of the most well-known (and biggest) active mutual funds.
However, Fidelity has long been a player in the world of passive index funds and, in recent years, the company has become an increasing presence in the exchange-traded funds (ETFs) landscape. Today, Fidelity has about $14.2 billion in ETF assets under management … a far cry from the $1 trillion-plus found at iShares and Vanguard.
Still, Fidelity is showing its growth capabilities in the cheap index fund and ETFs arenas. While Fidelity was late entering the ETF game, it is showing a willingness to compete on costs. For example, its 11 sector ETFs each carry lower fees than the rival Vanguard funds.
Fidelity has taken its approach to fees even further. Last year, the firm introduced four index funds with expense ratios of 0%. Not surprisingly, each of those funds has become successful and have done so in short order.
And Fidelity is at it again. While the products don’t have annual fees of 0%, the company recently introduced five new index funds, each of which is cheaper than the competing Vanguard funds. Those funds debuted earlier this week, so commenting on performance is pointless at this juncture. But let’s have a look at the potential of the newest cheap Fidelity funds.
Fidelity Mid Cap Growth Index Fund (FMDGX)
Expense Ratio: 0.05%, or $5 annually per $10,000 invested
The Fidelity Mid Cap Growth Index Fund (MUTF:FMDGX) is very reasonably priced even compared to traditional mid-cap index funds or ETFs that do not isolate a specific factor, such as growth or value. This new cheap Fidelity fund will invest the bulk of its assets in the Russell Midcap Growth Index.
Interestingly, one of the ETFs that tracks the same index costs 0.25% per year and Fidelity clients can realize additional cost efficiencies with this cheap Fidelity fund because the firm does not levy trading costs on its index funds and ETFs.
Growth stocks, regardless of market capitalization, are often more volatile than value fare and that is certainly true at the mid-cap level. While data is currently sparse on FMDGX, its underlying index allocates over a third of its weight to technology stocks and nearly a third of its combined weight to the industrial and consumer discretionary sectors.
Fidelity Mid Cap Value Index Fund (FIMVX)
Expense Ratio: 0.05%
The Fidelity Mid Cap Value Index Fund (MUTF:FIMVX) is the value counterpart to the aforementioned FMDGX. This cheap Fidelity fund targets the Russell Midcap Value Index and is likely to be less volatile than its growth peer over longer holding periods.
Again, these are new cheap Fidelity funds we’re talking about here, so judging FIMVX on performance is impossible at this juncture. That said, historical data confirm that the combination of value and smaller stocks, including mid caps, is potent.
FIMVX lives up to its billing as a less expensive alternative to rival funds in this category. It’s cheaper than the comparable Vanguard and less expensive than the equivalent ETFs. FIMVX’s underlying index allocates nearly a third of its combined weight to financial services and real estate stocks.
Fidelity Small Cap Growth Index Fund (FECGX)
Expense Ratio: 0.05%
The Fidelity Small Cap Growth Index Fund (MUTF:FECGX) is cheap compared to a basic small-cap index fund or ETF and really cheap relative to those funds that focus on a specific investment factor. This cheap Fidelity fund provides exposure to the Russell 2000 Growth Index, the growth derivative of the widely followed Russell 2000 Index.
As is the case with mid-cap growth, small-cap growth can be a volatile, but potentially rewarding combination. An issue to consider with this cheap Fidelity fund or any rival that combines smaller stocks and the growth factor is that many of the companies dwelling in this market segment are not profitable and are taking on debt to fund growth.
The Russell 2000 Growth Index has a three-year standard deviation of 17.45% and allocates nearly two-thirds of its combined weight to the healthcare, industrial and technology sectors.
Fidelity Small Cap Value Index Fund (FISVX)
Expense Ratio: 0.05%
The Fidelity Small Cap Value Index Fund (MUTF:FISVX) is the value answer to FECGX, the cheap Fidelity fund highlighted above. FISVX targets the Russell 2000 Value Index and may be one of the more compelling options mentioned here for long-term investors.
As has been widely noted, value stocks, regardless of market value spectrum, have been lagging their growth rivals and have been doing so for roughly a decade. This situation is an anomaly and one that will not last forever. So for patient investors, this cheap Fidelity fund makes sense as a cost-effective avenue to small-cap exposure.
The Russell 2000 Value Index is home to nearly 1,400 stocks, over 30% of which are financial services names.
Fidelity Municipal Bond Index Fund (FMBIX)
Expense Ratio: 0.07%
The Fidelity Municipal Bond Index Fund (MUTF:FMBIX) is a cheap Fidelity fund for conservative income-minded investors. There are plenty of inexpensive municipal bond ETFs and index funds on the market, but the combination of FMBIX’s low fee and zero-commission trading makes this one of the least expensive products in its respective category.
This cheap Fidelity fund holds nearly 3,650 municipal bonds, the bulk of which are investment-grade issues, indicating that this product will likely have a low yield, but one that is still more tempting than traditional cash investments.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.