HEAD-TO-HEAD: Blackrock versus Fidelity

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Fees

The Blackrock fund’s clean share class has ongoing charges (OCF) of 0.62%, while the Fidelity fund’s OCF is 0.68%.

Both funds are more expensive than the median figure of peer funds, according to Dobrescu. The peer median OCF is 0.55%.

The same is true for their retail share classes. The Blackrock fund’s retail share class’ OCF is 1.03%, while Fidelity’s OCF is 1.05%. The peer median retail share class OCF is 0.84%.

Although both funds have higher OCFs compared to their peers, the Blackrock fund receives a “neutral” rating for fees while the Fidelity fund has a “negative” rating, Dobrescu noted.

The difference between the two funds’ OCFs is just a couple of basis points, but the Blackrock fund’s OCF is not high enough to warrant a negative rating.

“Fees are something that we are keeping a close eye on, especially for fixed income funds,” she said.

Dobrescu explained that a Morningstar study last year indicated that fees are one of the biggest predictors of future performance, especially for fixed income funds because the returns achievable are fairly low in absolute terms.

“A few basis points of extra fees accumulated over time will eat up a lot of the potential outperformance, so we are extremely vigilant about the fees in the fixed income space.”

Although Blackrock has a better rating in fees than the Fidelity fund, it is still not “off the hook” given its higher fees compared to its peers, Dobrescu noted, adding that actively-managed fixed income funds are facing tough competition from passive funds.

“The environment is becoming more and more competitive, especially since there have been a lot of fund launches in the passive space. Both index funds and ETFs track Euro corporate bond indices and charge very low fees of around two-to-25 basis points.

“Those are formidable competitors for actively-managed funds and it is becoming really hard for these funds to continue justifying the higher fees over time.”

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