Welcome to the latest installment of our weekly fund review, in which we peruse the past week's notable fund news and tell you what it means for Foolish investors.
Barclays struggles to crack 401(k) market
Exchange-traded funds have gained widespread popularity among investors, except for one highly lucrative market -- the 401(k) world. Currently, only a handful of plans offer ETFs. Barclays Global Investors, one of the leading ETF providers, has so far been stymied in trying to break into the 401(k) market. Two of its biggest obstacles are Vanguard and Fidelity, the nation's two largest retirement plan managers. So far, Vanguard and Fidelity have refused to offer ETFs on their retirement plans, citing sparse customer demand. Unless these two firms change their tune, Barclays may face an uphill battle.
While their decision isn't entirely selfless, I believe that Vanguard and Fidelity are right to keep ETFs out of retirement plans. Barclays and other advocates will doubtlessly argue that ETFs have some advantages over traditional index funds, but the possibility that investors may misuse them is equally compelling. ETFs' trading flexibility may tempt investors to trade more frequently, rather than pursuing a long-term buy-and-hold strategy. Here's hoping Vanguard and Fidelity remain firm on their stance.
Funds' cash stakes falling
According to a research report from Bank of America
In general, less cash is a good thing for mutual funds. If you buy a technology fund, for example, you want your money buying shares of technology companies like Motorola
Fidelity chasing market share
Fidelity CEO Ned Johnson says that the firm's advisor services business is temporarily forgoing profit margins in an attempt to boost market share. Fidelity is trying to close the asset gap between its custodial platform and that of industry leader Schwab Institutional, which manages nearly twice as many assets. To this end, Fidelity has quintupled its technology budget in the past four years, in hopes of making its advisor platform the industry's strongest by 2011, and closing the asset gap with Schwab soon after.
Surpassing Schwab won't be easy, and Fidelity's technology spending alone may not get the job done. However, sacrificing short-term profit margins may pay off for Fidelity in the long run, if it can win significant market share. Advisor business is relatively "sticky"; once Fidelity has a foot in the door, it's likely to remain there, capturing more assets in the future.
Investors should do their homework before signing up with any financial advisor, just like they would before buying any investment. Ask questions, and make sure you get answers you feel comfortable with. Whether your advisor works with Schwab, Fidelity, or someone else, take the time to ensure you're paying for a qualified, reliable opinion, rather than relying solely on a fund company's brand name.
Further fund-amental Foolishness:
Fool contributor Amanda Kish lives in Rochester, N.Y., and does not own shares of any of the companies or funds mentioned herein. Bank of America is an Income Investor recommendation. The Fool's disclosure policy sports a negative expense ratio.
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