Fee cuts help, but may be over-hyped

(November 30, 2004) Even after cutting management fees, many of the top funds offered by Fidelity Investments Canada will still not be the cheapest, according to Rudy Luukko, investment funds editor of Morningstar Canada.

In Luukko’s Morningstar column today, he points out that on the basis of lowest MER alone, Fidelity tends to rank around third place among the major advisor-sold funds — and that’s assuming none of its rivals cut their fees.

“A $12 million saving for investors in one year is nothing to sneeze at,” Luukko wrote in his column. “Even so, the fee reductions announced last week by Fidelity Investments Canada Ltd. aren’t deep enough to make the company the undisputed price leader among the major advisor-sold fund firms.”

Last week AIC and AGF also announced they were reviewing their fees, but there has been no announcement that these firms would follow suit.

So, using the known reductions coming to Fidelity funds, Luukko compared the top offerings. In the Canadian Equity category, the MER on the Fidelity True North Series A will drop from 2.56% to 2.36% in January, making it 31 basis points lower than the category median of 2.67%.

But that still leaves Fidelity lagging behind in the “low fee” field, as the front-end-load Trimark Canadian SC carries an MER of just 1.64%. Second place goes to AGF Canadian Large Cap Dividend, which charges 1.92%. Fidelity’s fund comes in third.

A similar result can be found in the Global Equity space, as Fidelity International Portfolio Series A’s current MER is again lower than the median, but even with the announced cuts, it ranks third at 2.44%, behind Trimark Fund SC at 1.61% and Templeton Growth, with an MER of 2.4%.

When it comes to Canadian Balanced funds, Fidelity is currently slightly above the median MER with the 2.41% charged on Fidelity Canadian Balanced Series A, but the 20 basis point cut will make the fund the among cheapest in its peer group, at around 2.21%. Currently cheapest is Mackenzie Ivy Growth & Income at 2.2%, so if Mackenzie does not cut its fees, the difference will be negligible.

In the U.S., Fidelity should move to the front after cutting the MER on its Fidelity Growth America Series A. Again, the current ratio of 2.61% is lower than the median of 2.69%, but come January, the new MER will be just 2.41%, edging out Trimark U.S. Companies, whose MER is 2.52%.

The 30-point cut to its Fidelity Canadian Bond Series A MER takes the fund to within 5 basis points of the cost leader Trimark Canadian Bond, which currently carries an MER of 1.28%.

Of course, Luukko is only comparing fees and not performance, and lower fees do not necessarily result in better value.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com