“Under the terms of each fund’s management contract, FMR [Fidelity Management & Research Company LLC “the ultimate parent company of Fidelity”] is responsible for payment of all operating expenses of the fund except for the fees and expenses of the Independent Trustees.” From the SAI Dec 2023 p. 53 (identical wording in the SAI Dec 2022). Further, the same thing is said in the notes to the financial statements in the annual reports.I heard an interview with JL Collins where he said the Fidelity Zero funds were just a "loss leader" and he didn't trust that they would be continued.
What do you think? Does Fidelity lose money on the Zero funds, and if not, how do they make money on them? Are they just a marketing gimmick to get new customers?
To be clear, I don't have an opinion on this, but I'd like to hear other people's thoughts (or facts, if you have them).
In the statement of operations, income from security lending is “investment income”, just like dividends and interest. It is not an offset or reduction to the fund expenses. The only expenses shown are the fees and expenses of the independent trustees. These are so low that as a percentage of net assets, they round to zero.
They are not charging extra, by the way, for securities lending services to FZROX than they are for other fidelity mutual funds (e.g., Fidelity Magellan or Fidelity Total Market Index Fund) and somehow making money to “run” the fund that way.
Thus, the ultimate parent company of Fidelity (owned by the Johnson family and high-level Fidelity executives) is paying the expenses of the Fidelity Zero funds. Because FMR is paying the expenses, we don't know what the operating expenses are.
I doubt they would liquidate the funds but I suppose they could close them to new investors if they thought the expense burden (compared to the benefit from investors in the funds buying other, more expensive Fidelity funds*) was becoming too great.
*Just consider the other threads on this board discussing the expenses of most Fidelity money market funds.
Statistics: Posted by Geologist — Thu Sep 05, 2024 5:04 pm — Replies 95 — Views 16919