Instant Heart attack -- FSELX has 10-1 split

dstone42

Checking my account at Fidelity this evening and saw that FSELX had dropped 90% today.

I checked my portfolio at Morningstar -- same story. Ditto at Marketwatch.

Figured it had to be a mistake, since I hadn't hear any news about Intel, Qualcom, etc going in the tank today.

Checked FSELX at Fidelity:
"Effective after the close of business on May 11th, 2018, Fidelity will execute a 10-for-1 share split on each Class of the Fund. As a result of the split, the number of outstanding shares has been multiplied by 10, with a proportionate decrease in the Net Asset Value (NAV) per share."

Whew -- I can start breathing again.

If they warned anybody ahead of time, I didn't hear it.

David

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TheShadow

FSCSX also had a stock split.

Here is a list of Fidelity funds splitting:

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/mutual-funds/mf-share-splits_apr2018.pdf

msf

If I place an order for a buck and a quarter's worth of a $100/share fund, the fund company (or brokerage) will take my $1.25 and hand me a 0.012 shares, worth $1.20.

If I place an order for a buck and a quarter's worth of a $10/share fund, the fund company (or brokerage) will take my $1.25 and hand me 0.125 shares, worth $1.25.

Not a big deal, but a rational one.

Regarding whether the change is effective from a marketing perspective, this bogleheads Wiki page cites a 1999 paper saying that: "We find that mutual funds that do split experience significant post-split increases in net asset inflow and the number of shareholders. Our findings suggest that fund managers use splits to attract new money, and that fund managers regard splits as enhancing the marketability of mutual fund shares."
https://www.bogleheads.org/wiki/Mutual_fund_share_split

At least a couple of decades ago, fund buyers did respond to this marketing maneuver. So while one can say that investors' responses are irrational, given that they do (or did) respond to splits, a fund doing a split is acting rationally. At least if they want to increase inflows.

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davidrmoran

? - maybe the math and daily reconciliation are somehow easier (just idly speculating)

non-pdf list:

https://sponsor.fidelity.com/pspublic/pca/psw/public/library/designbenefits/Fidelity_funds_undergo_share_splits.html

certainly it looks cooler to be able to drop a bunch of $125 / sh funds to $12.50 / sh.

msf

In 1999, commission schedules were all over the map, but few charged extra for odd lots. (See survey cited below.)

My own recollection of Schwab and Fidelity is that they charged a flat rate up to 100 shares, and prices went up from there (though I don't recall their formulae).

For the lowest price, one could have used Brown & Co. It apparently charged a flat $5 rate for market orders, regardless of the number of shares or dollar value of the order.

That's like today's flat rate model. With either model (flat to 100 shares or flat, period), odd lots (under 100 shares) cost more per share than a round lot of 100 shares. Simply because you pay the same flat rate for fewer shares traded. Same arithmetic then and now.

AAII Journal, The 1999 Discount Broker Survey: A Guide to Commissions and Services
http://www.aaii.com/journal/article/the-1999-discount-broker-survey-a-guide-to-commissions-and-services

Surprisingly, restricting mutual fund transactions to whole shares is not just a thing of the past. Last year I converted a position at Merrill Edge from a traditional to a Roth IRA, and Merrill was unable to convert the fractional share. It converted the whole shares only. Then a few days later, it liquidated the fractional shares and converted the cash.

Clearly a system stuck, as you described, back in the '90s.