Fidelity shocks the fund world

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  Just when it seemed that all the articles being written about high mutual fund fees were having zero impact, along comes Fidelity Investments Canada with a surprise announcement of across-the-board cuts.

In a press release last week, the subsidiary of the Boston-based giant said that effective Jan. 10 it will reduce management expense ratios (MERs) for all of its funds. The reduction for equity, balanced, and high-yield funds will be about 20 basis points (0.2%) while for fixed-income and money market funds the cuts will be even deeper, at 30 bp.

The Fidelity move has implications for the stocks of publicly-traded mutual fund companies because the main revenue source for fund companies is the income from management fees. That’s the primary reason why fees have continued to trend higher in recent years despite economies of scale and public criticism. Any significant reduction in fees could compromise the bottom line of an organization.

Fidelity is not a public company so it does not have to be concerned about the impact of this decision on shareholders. But companies such as AGF, CI, and Investors Group are in a different position. If they cut fees to be competitive, they have to increase sales accordingly or see profits erode.

It’s in the fixed-income and money market categories especially that the competition could feel pressure. For example, the CI Bond Fund has an MER of 1.74%. Fidelity Canadian Bond Fund is currently at 1.66%, scheduled to drop to about 1.36%. A difference of 38 bp is huge in a bond fund. If people are paying attention, Fidelity should benefit in terms of market share.

The same thing should happen on the money market side. CI Money Market Fund has an MER of 1.08%. Fidelity Canadian Money Market Fund is at 1.01%, which will fall to about 0.71%. This is a big differential and investors will see it pay off in returns. The Fidelity fund gained 1.35% over the year to Oct. 31 while the CI fund was ahead 1.31%. The reduced MER should go right to the bottom line, which would boost the return on the Fidelity fund accordingly in 2005. Advantage: Fidelity.

Fund investors who own high MER fixed-income or money market funds may want to consider a move. Fidelity is going to look much more attractive in those areas once the cuts become effective.

THE BEST OF THE BOUTIQUES

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  Do you know that many financial advisors won’t tell you about some of the best mutual funds in Canada? We’re talking about those with the lowest costs and the highest returns, which is exactly what every investor is looking for.

Why are they being kept secret? Because they pay little or nothing in the way of sales commissions and trailer fees, the bread-and-butter of the advisory community. So unless you are on a fee-based plan, your broker or dealer has a vested interest in recommending funds from Mackenzie, or AGF, or Dynamic, or the rest of the brand-name houses.

But if you want to know where the real profits are being made, you need to look towards some of the smaller companies, the ones that are below the radar screens of most investors. We’ve prepared a list of those we like best. You can read the story at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2066

LOONIE FALL-OUT

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  Our dollar is flying high but not everyone is happy about it. Corporate profits are being hit and investors have to consider some new strategies if they are going to succeed in the year ahead. To find out what is really happening and what to do about it, read the article at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2065

SMART FUND STRATEGIES

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  Mutual funds not performing as well as you would like? Don’t give up on them – just learn how to invest more efficiently. Check out our tips at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2053

TIME TO LOCK IN YOUR MORTGAGE?

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  With interest rates on the rise, many homeowners are wondering whether it is time to lock in to a longer-term mortgage. You can read out advice in this thorny issue in this week’s Question and Answer feature at http://www.buildingwealth.ca/qa.cfm

You will also find questions on how to handle dubious recommendations from an advisor, reducing tax on severance payments, the possibility of a bear market in 2005, and investing all RRSP assets in a single fund.

As always, we invite you to send along your own financial question for consideration.

STOCK OF THE MONTH

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  Our top stock pick in our flagship Internet Wealth Builder newsletter over the past month was Manitoba Telecom (TSX: MBT), selected by contributing editor Tom Slee. He picked the stock because of its high dividend of $2.60 a year and modest capital gains potential.

At the time, the shares were trading at $46.68. On Wednesday, they were at $47.24.

Be sure to discuss the company with an advisor before making a purchase decision.

For information on becoming an IWB member, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=467

DON’T MISS OUR FALL SPECIALS

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  Our fall specials will end soon, so don’t miss out. Here are some of our current offers.

MUTUAL FUNDS INVESTORS PACKAGE. Our annual Buyer’s Guide to Mutual Funds will no longer be published in book form but you’ll find all the information you need to pick the winners in this Package. www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=502

CIBC FUNDS SPECIAL REPORT. If you own any CIBC mutual funds, this up-to-the-minute analysis is must reading. Includes commentaries and ratings on more than 40 funds. www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=508

RBC FUNDS SPECIAL REPORT

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  Written especially for those who own any RBC mutual funds. Find out if you really have the best products this company has to offer. www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=497

YOUR RETIREMENT PLANNER

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  The most comprehensive retirement planning software program ever developed for Canadians. Suitable for both RRSP and RRIF calculations. See whether your plan is on track and, if not, what you need to do. www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=505

PLATINUM PACKAGE

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  This is the best value we offer. You save over $60 on a one-year membership that includes the Internet Wealth Builder, The Income Investor, Mutual Funds Update, and the On-Line Mutual Funds Database. www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=381

CHRISTMAS IS COMING

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  There are fewer than three weeks to go until Christmas and if you haven’t picked up your copy of our new Quizmas book yet, don’t wait. Time is running out and you’ll want to have this fun-filled book in time for the holidays. To get your copy (plus extras as gifts) visit your local bookstore or go to http://www.quizmas.net/index.cfm?type=shop – our price is only $12.80 plus shipping and tax.

We also have a limited supply of Quizmas Cards available. Each of these beautiful cards contains a Quizmas question from the book, with the answer on the back. There’s also plenty of room for a personal note, if you want to add one. Each set includes 10 cards plus envelopes. There are three different questions in each set.

The price for these unique cards is $29.95 per set, plus shipping and taxes. Order a second set or a copy of the book to bring your total to over $39 and the shipping is free!

To add a very special dimension to your holidays, read the Christmas Memories submitted by our readers. You’ll find them to be entertaining and inspirational. The Memories page can be found at http://www.quizmas.net/index.cfm?type=memory

If you have your own Christmas memory you would like to submit, please send it along. You’ll find a special e-mail form at http://www.quizmas.net/index.cfm?type=memories

SYMPATICO/MSN QUIZMAS CONTEST

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   Sympatico/MSN is running a “12 Days of Christmas” contest using questions from Quizmas. You can enter daily from now to Dec. 12 to win a copy of the book or the grand prize of a Bell ExpressVu system. For details and to play, go to http://holidayquiz.sympatico.ca

That’s it for the December issue. Remember that you’re invited to forward a copy of this issue of Investing Today to your friends or anyone you think might be interested. If you have received this copy from someone and would like to be on our regular distribution list, go to http://www.buildingwealth.ca/InvestingToday/Newsletter.cfm to sign up.

That’s it for the December issue. Remember that you’re invited to forward a copy of this issue of Investing Today to your friends or anyone you think might be interested. If you have received this copy from someone and would like to be on our regular distribution list, go to http://www.buildingwealth.ca/InvestingToday/Newsletter.cfm to sign up.

Best wishes for the holiday season,