How Fidelity Is Positioning Its Index Fund Offerings

July 12, 2016

by Robert Huebscher

Two recent announcements from, well-known for its actively managed mutual funds, show that it intends to strengthen its competitive positioning and grow its market share in the index fund business. On June 14, it announced that it strengthened its fund lineup. On June 28, it announced that it lowered expenses on 27 of its mutual funds and ETFs.

I spoke with Colby Penzone, the senior vice president for Fidelity’s Investment Products Group, on July 1 about those announcements.

Can you provide some background on your responsibilities and the product suite that you manage?

I lead a group of product managers and we are responsible for the product strategy, development and management of the equity and high-yield products that we distribute at Fidelity. That includes both our active retail and advisor fund lineups, index products, the sector lineup of index ETFs that we have and our institutional strategies, which include co-mingled pools, separate accounts and other offerings.

I want to ask about the two recent announcements from Fidelity. The first was the introduction of three new index funds along with the re-branding of the Spartan funds to the Fidelity name. What was your motivation behind that move?

As I’m sure you are aware, we’ve been in the index business for about 25 years. Over that period of time, we have continuously expanded the lineup and sought to provide as compelling a low-cost offering as we can to our clients. This is an extension of us wanting to continue to deliver what we believe is great choice and value in our index lineup across all the distribution channels that we serve including to advisors.

The second announcement was the reduction of expenses on 27 of your equity and bond index funds. What was behind that move?

It’s consistent with what I just said. We are constantly scanning the marketplace. We are engaging with our customers, including advisors, to understand their needs, their preferences and their views. We wanted to make sure that we continue to be very, very cost competitive – if not the lowest provider. We view price as one part of the value proposition that we are providing our clients. Across the different distribution channels we provide a wide array of services and products, whether that is to our retail clients or to advisors or to plan sponsors in our 401(k) business.

In the press release for the second announcement you were quoted as saying “while cost matters, investors should also consider the overall experience and value a financial services firm can deliver when deciding where to invest.” What does that translate to?

There are two segments to that answer. There are certainly the advisors to whom we provide platform or custody services, and there is a broad set of capabilities that we bring to bear in those relationships, from technology and capital markets services to practice management and investment insights. For our off-platform advisors, to whom we are now making these index funds available, provided they meet the prospectus minimum, we are providing them not just index funds but a broad array of active products that we believe strongly in, and we think are great for their customers’ portfolios. When you combine one of the most comprehensive and competitive investment product lines in the industry with our commitment to delivering world-class service, technology platforms, etcetera, we feel strongly that we offer the best customer experience and value in the industry.

Were either of those changes motivated by the new DOL fiduciary rule?

It wasn’t in response to any regulatory change. It’s a long-term strategy and we are not making any quick products shifts as a result of any sort of regulatory change.

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 Fidelity Investments

Fidelity Investments