US fund giant Fidelity has launched a brace of passive equity funds that have an ongoing charge of zero.
The funds, available to clients of the US business, will respectively track Fidelity US and international indices and have zero ongoing charges.
There will also be no minimum investment level.
Fidelity’s model to make the products pay will be to engage in stock lending, that is to lend the underlying shares held in the funds to those who wish to short sell those shares in exchange for cash.
There has been intense price competition among passive product providers in recent years, with the fees faced by investors tumbling as a consequence.
Last year Vanguard launched its direct-to-consumer online investment service charging an annual account fee of just 0.15 per cent.
Adam Laird, head of ETF strategy for EMEA at Lyxor, a rival to Fidelity, said he was "not surprised" this had happened as pricing pressure had been extreme in the passive investment space.
He said the majority of the clients of his firm had expressed concern about the practice of stock lending, so he expected the Fidelity product to appeal to investors experienced enough to understand the practice.
Dan Brocklebank, head of the UK business of Orbis Investments, said advisers needed to ask whether the products could only be bought by clients of the Fidelity platform, and therefore have to pay a platform charge.
Ben Seager Scott, chief investment strategist at Tilney, said the development was "very interesting" and said the debate around the product would centre on stock lending and firms providing their own indices.
A representative of Fidelity in the UK said the US operation was a "completely seperate business" and she is unaware of any plans to launch a product with zero fees into the UK market.
david.thorpe@ft.com
