A True Blessing for Investors: Fidelity starts a low cost ETF price war

From MarketWatch.com:

Fidelity Investments proved that an 800-pound gorilla gets to sit “anywhere it wants” Thursday when the company announced a new suite of sector-oriented exchange-traded funds — squatting squarely in the territory of low costs, essentially ensuring that investors will benefit from a cost-cutting war as the industry’s big apes slug it out.

Fidelity launched 10 new passive sector exchange-traded funds — they started trading at 9:30 a.m. — each with a total expense ratio of 0.12% and available commission-free through the company’s brokerage platforms. The expense level represents roughly an 80% discount off the average ETF in the space, and the costs are 0.02 points below Vanguard’s offerings tracking essentially the same indexes.

“These companies are embarking on a pretty ugly price war,” said industry consultant Geoff Bobroff of East Greenwich, R.I. “For investors, this has the potential to be a pretty glorious time, because once prices have dropped, there’s really no way for the companies to bring them back.”

While Fidelity has been slow to enter the ETF space, Thursday’s announcement changed all that.

“Fidelity is not just seeking entry into the ETF business, but is clearly seeking market share from the get-go in the sector ETF sleeve” of the business, says Jim Lowell, editor of the Fidelity Investor newsletter.

Industry watchers note that Fidelity has played this game before, and with great success. Years ago, Fidelity engaged in a price war with Dreyfus in the money-market fund space, each waiving fees to create the highest yield possible, hoping to capture market share even if the business model was showing minimal if any profits as a result.

Fidelity could engage in that kind of war because its core revenues were not particularly tied to the money-market business....
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Link: http://www.marketwatch.com/story/a-price-war-to-benefit-etf-investors-2013-10-25