Favorite Mutual Fund Companies: The Results

Written by nickel - 13 Comments

Just over a week ago I asked the following question:

If you were only allowed to choose one mutual fund company for your investments, which one would it be, and why?

As of this writing, here are the results…

Vanguard - 17 votes
T. Rowe Price - 3.5 votes
Fidelity - 3 votes
Dodge & Cox - 2 votes
Maires and Powers - 0.5 votes

(Although I asked for just one company, some people listed more than one. In those cases, I split the votes.)

My thoughts:

I doubt that anyone that knows anything about mutual funds is surprised to see Vanguard come out on top. While I didn’t weigh in previously because I didn’t want to bias the voting, Vanguard is my top choice, as well. My 403(b), SEP-IRA, and our non-retirement mutual fund holdings are all at Vanguard. In contrast, my defined contribution plan is at Fidelity and my 457(b) is at TIAA-CREF. Truth be told, the only reason these latter accounts aren’t Vanguard is that Vanguard isn’t an option.

To be honest, I was a bit surprised to see Fidelity get thrashed so soundly. Their a mainstream investment company with a lot of exposure in employer-sponsored plans, and a number of their index funds are actually a bit cheaper than their counterparts at Vanguard (at least for the time being).

Published on July 18th, 2007 - 13 Comments
Filed under: Saving & Investing
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Comments (scroll down to add your own):

I’m surprised to see Fidelity so far behind as well. The more I’ve researched funds and companies, the more I’ve seen Vanguard and Fidelity funds as comparable competitors (and at the top of the heap together). In any given fund type, one may be a little cheaper or a little more tax-efficient or perform a little better than the other, but I consider them to be pretty close. I have accounts with both and I really like the fund options they have.
Comment by Brad — Jul 18th 2007 @ 10:46 am
Personally, I’m a Vanguard guy. I have never used Fidelity and do not have a close friend or family member who has used them, so all I have to go on is its fees, historical performance, etc. At the very least, Fidelity seems to be a poor man’s Vanguard.
Comment by specialkindofstupid.com — Jul 18th 2007 @ 1:30 pm
I maintain the bulk of my money at T. Rowe Price. They offer no load, low-cost funds with excellent return (at least in my case) and the chance to start with just $50 (if you sign up for systematic investments). Thanks to them, and their low entry requirement, I have been able to steadily build a nice portfolio with an excellent return (so far).
Comment by Rob — Jul 18th 2007 @ 3:36 pm
I just don’t *trust* Fidelity, and view any price-cut on their part with skepticism. Bogle (and now Brennan) spent a lot of time building reputational capital–Vguard works (or has convinced us it works) on behalf of its shareholders, not against them. The Fidelities of the world are SALES organizations, focusing on revenue maximization for the firm OWNERS, not the mutual fund participants.

Oh, and indexes rule.

BTW, my vote for Dimensional was discounted… In some ways, they out-index Vanguard and, in the long run, they are not much more expensive (and have MUCH better allocation options).
Comment by Hieronymous — Jul 18th 2007 @ 4:11 pm
I agree about the concerns over Fidelity’s low fees. They readily admit that their current fee structure is a discount over actual fees, which suggests they might be trying to capture market share, only to raise fees later. Since selling their funds down the road is a taxable event (in a non-retirement account, anyway) people will be reticent to flee in the event of a fee increase. Bottom line: I trust Vanguard a good bit more.

BTW, your vote for Dimensional was so heavily qualified (”in theory, were I able to overcome the up front fees”) that it didn’t get counted. My house, my rules… But I do agree that they look interesting.

Comment by nickel — Jul 18th 2007 @ 4:15 pm
Vanguard would be my choice, as well, but Dodge & Cox would be a very close second. I own DODGX (Dodge & Cox Stock Fund) and DODFX (international fund) and the Dodge & Cox Income fund is excellent, too. Dodge & Cox favors value investing, which I think is the best long term strategy. The nod for me goes to Vanguard, however, because of its low fees and excellent index funds. Fortunately, we´re not limited to just one mutual fund company.
Comment by Dough Roller — Jul 18th 2007 @ 6:23 pm
I had never before heard about Fidelity’s low fees potentially being a short-term thing to lure in customers. That possibility would certainly tilt the scales if I was on the fence between them and Vanguard (which I’m not…Vanguard rocks).
Comment by specialkindofstupid.com — Jul 19th 2007 @ 11:05 am
Probably sensing that people were worried about the fees just being teasers, Fidelity contractually limited the expense ratios on a couple of their index funds and cannot raise them without shareholder approval. Their total market and S&P funds are both locked at 0.1%. FSTMX is my biggest holding and I’m not all that worried about a sudden fee change.

My main issue with Fidelity is that the low ratios only apply to a select couple of funds, and most of their other funds do not seem competitive. Also, their index funds have somewhat inconvenient minimums, $10k initial with $1k required additional investment.
Comment by jpsfranks — Jul 19th 2007 @ 9:42 pm
jpsfranks: True, but (for example) I recall reading about TIAA-CREF getting shareholder approval in a similar situation by basically saying “let us increase the fees or there’s a possibility that we might shut down the fund.” Of course, Vanguard could also raise fees, but I trust them more on this issue. Besides, Fidelity already admits that their fees are in some cases below the true cost to run the funds. Granted, this could be an entirely different sort of loss-leader, wherein they offer cut-rate prices not with the intention of jacking them up, but rather to attract business to their other, more profitable services. But shareholder approval isn’t a huge thing to overcome.

Comment by nickel — Jul 20th 2007 @ 7:12 am
I agree that getting shareholder approval to raise fees on a fund is not that much of an obstacle.
Comment by Flexo — Jul 20th 2007 @ 10:19 am
It’s certainly possible, and I’ve read about the TIAA-CREF case you mention, but I find it it hard to imagine Fidelity threatening to close the fund over fees. It seems to me that Fidelity wouldn’t have nearly as much leverage to try such shenanigans considering they’ve got a lot of retail customers who can simply walk, and it would be pretty embarrassing to be seen to capitulate like that as a credible index fund provider.

Anyways, I’m happy to take my chances with Fidelity. I find them overall to be an excellent brokerage with great customer service. I’d consolidate more there if their other funds were more competitive.
Comment by jpsfranks — Jul 20th 2007 @ 9:36 pm
Is it possible that Fidelity are making a loss on some funds in order to get enough investments that the fee levels will be correct. I’m imagining that there are economies of scale with fund management, so if they could get the fund size big enough it may turn a profit without increasing fees.
Comment by plonkee — Jul 23rd 2007 @ 7:23 am
I buy ETFs instead of mutual funds… I like Vanguard and Rydex..
NCN
Comment by NCN — Jul 23rd 2007 @ 7:30 pm