Investment Product and Service Launches

Fidelity adds lower expense ratio mutual funds, and Vanguard introduces global stock fund. 

Art by Jackson Epstein

Art by Jackson Epstein

Fidelity Adds Lower Expense Ratio Mutual Funds

Fidelity Investments has expanded its index fund offering with the launch of five new mutual funds.

As is the case with Fidelity’s 53 existing stock and bond index funds and 11 sector exchange-traded funds (ETFs), the new funds have lower expense ratios than their comparable funds at Vanguard. The five new funds are available to individual investors, third-party financial advisers (TPAs) and workplace retirement plans.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

“Fidelity’s goal is to provide exceptional value, simplicity, and choice for our customers,” says Colby Penzone, senior vice president of Investment Product at Fidelity. “We saw an opportunity to further expand our robust index fund lineup and bring our expertise into these areas of the market. Our scale and diversification put Fidelity in a unique position to help clients reach their financial goals.” 

The new funds include: Fidelity Mid Cap Growth Index Fund; Fidelity Mid Cap Value Index Fund; Fidelity Small Cap Growth Index Fund; Fidelity Small Cap Value Index Fund; and Fidelity Municipal Bond Index Fund.

Vanguard Introduces Global Stock Fund

Vanguard has filed a preliminary registration with the U.S. Securities and Exchange Commission (SEC) for Vanguard International Core Stock Fund. The new actively managed fund will be managed by Wellington Management Company LLP (Wellington Management) and is expected to be available to investors in the fourth quarter of 2019.

Vanguard International Core Stock Fund will offer broad equity exposure to both developed and emerging non-U.S. markets, blending growth and value styles and diversifying across a range of sectors. The fund will seek to provide long-term capital appreciation and hold approximately 60 to 100 stocks, with no individual positions representing greater than 5% of the portfolio. It is expected to have moderate overweight or underweight allocations to sectors and regions relative to the MSCI ACWI ex USA Index.

Wellington Management is said to employ a multi-disciplinary approach that identifies potential high-return opportunities by leveraging the full breadth and depth of Wellington Management’s global resources, including: Global Industry Analyst research; positions held by Wellington Management’s investment boutique teams; investment ideas from Wellington Management’s quantitative research teams; macro-economic research; and environmental, social and governance (ESG) research emphasizing governance practices. 

The estimated expense ratios for Vanguard International Core Stock Fund will be 0.35% for Admiral Shares and 0.45% for Investor Shares, both considerably lower than the asset-weighted average expense ratio of 0.75% for the industry’s foreign large-blend fund category.

S&P Finds Most Not-for-Profit Hospitals Manage Pensions Well

However, the ratings agency doesn’t expect funded status improvements to continue, and it notes that many not-for-profit hospitals are focusing on de-risking strategies.

The U.S. not-for-profit health care sector has benefited from an increase in the median funded status of its pension plans in fiscal 2018—increasing from 80.6% to 85%, according to S&P Global Ratings.

S&P says this boost is primarily due to an increase in the discount rate used to measure pension liabilities, which reduced those liabilities. The discount rate is based on a conservative municipal bond rate, and S&P views the 2018 increase as being within reasonable volatility expectations, so it says it doesn’t consider it to be a fundamental change in the funded status of the plans.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

In the near term, S&P Global Ratings believes a higher funded status should mean lower statutory minimum contributions to defined benefit (DB) pension plans, which could help overall financial profiles because operating performance in the health care sector remains under stress. However, the bond rate may be volatile from year to year, the projected benefit obligation for many plans remains large, and many plans have updated assumptions such as mortality to more accurately recognize longer lifespans and higher benefits to be paid out. Therefore, the advantages to organizations’ financial profiles from lower statutory minimum contributions may not fully materialize.

S&P notes that many not-for-profit issuers continue to focus on de-risking strategies that lower pension funding risks, including increasing annual contributions to improve the funded status with less dependence on volatile markets, closing current plans to new participants, freezing plans, and in some cases, terminating plans altogether.

According to S&P’s analysis, most hospitals and health systems have managed their pension burdens well, with no credit implications. However, it believes that even without a direct negative credit impact, in some circumstances, a high funding burden has inhibited improvement in credit quality. Furthermore, not all hospitals’ pension funding improved in 2018, and for providers already struggling with thin income statements and balance sheets, underfunded pension plans could contribute to credit stress.

In general, S&P says, it considers fully funded plans (plans funded at 100% or more) or the absence of a DB plan as positive factors in its assessment of an organization’s financial profile. Conversely, it views DB plans that are considerably underfunded, or expected to be underfunded in the near- to mid-term, as risks to the financial profile.

Whether the average funded status will remain at the current level or improve depends on a number of factors, including market returns, discount and bond rate trends, other actuarial assumptions, and benefit design changes, according to the S&P Global Ratings report. S&P notes that many hospitals and health systems are moving to mitigate risks through more conservative asset allocation strategies, while others are focusing on reducing liabilities by making benefit design changes. Still, some are reluctant to change or curtail DB plans that have long been a part of their benefits packages and that they see as a powerful recruitment and retention tool.

«