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Why tech will continue to lead for decades to come. I worked in IT over 35 years in different sectors from retail, to banking, finance, mutual funds to healthcare. There is no way to stop this trend and it's getting faster. How long it took Walmart to be dominated? compare it to Amazon. BTW, Amazon is a tech company and I can argue that WM is one of the best retail companies because of its great IT for many years. Value investing was easier years ago when a good manager can find undervalued companies under the radar but in a digital, global, free data world it's a lot harder. High tech squeezes every corner in every business. To acquire the next customer for high tech companies is very cheap, sometimes pennies because the infrastructure exists already and digital is very cheap compared to actual stores and humans. Some sectors are harder to break such as banking and finance but even they have been going down by joining the big tech. How long can you deceive clients by promising them better performance when a computer is cheaper and better. You can transfer now money to any person in seconds for free, just several years ago you had to pay a commission and took several days. There are always new upcoming tech companies and when they do something well they explode very quickly because 1-5% lower price for the same (sometimes better) service means a lot. You can see it on Amazon if one company offers the same product for $1 cheaper and if the service is good it will take a huge % of the market. A reasonable customer will always pay less. Real estate is another slow sector that will be more computerized. The only sector that holds steady is healthcare, it gets more expensive with no end in sight IMO. There is no way to solve the HC issue in the USA. We can start a new thread on this.
FXAIX didn't perform better because it didn't have a lower ER all these years. The main difference between me and others is that I supply numbers and not just narrative;-)
It would be very time consuming to find ER for previous years but from memory, Fidelity lowered ER for their index funds years ago to compete with VG.
From M*, for 5 years average annual as of (04/08/2020) [...] It's a surprise that VOO with lower ER had lower performance than VFIAX
VOO is a bit of a distraction, because it introduces an additional layer of differentiation (ETF share class vs. OEF share class) and because its ER was lower by just 1 basis point for one year. Amortized over five years that amounts to nothing more than a rounding error. Still, it's good to see an acknowledgement that an S&P 500 index fund with a lower stated ER can have lower returns.
That's important because it puts lie to the statement that "FXAIX didn't perform better because it didn't have a lower ER". Certainly ERs affect relative returns, but they're not dispositive, especially when the magnitude of a difference between funds is small.
"It would be very time consuming to find ER for previous years." So sometimes you don't "supply numbers". That's okay. But you presented a numeric claim, viz. that FXAIX had a higher ER all these years, without checking the numbers. That calls into question numbers posted without citations and links.
VFINX ER from current prospectus and from 1998 prospectus 2019: 0.14% 2018: 0.14% 2017: 0.14% 2016: 0.14% 2015: 0.16% 2014: 0.17% 1999-2013: between 0.17% and 0.19% (interpolation) 1998: 0.19% 1997: 0.19% 1996: 0.20% 1995: 0.20% 1994: 0.19% 1993: 0.19% 1992: 0.19% 1991: 0.20% 1990: 0.22% 1989: 0.21% 1998: 0.22%
FXAIX (and predecessor fund) ERs from:
current prospectus [On July 1, 2016, FMR reduced the management fee ... from 0.025% to 0.015%],
2011 prospectus [On February 1, 2011, FMR reduced the management fee ... from 0.07% to 0.025% ],
2005 prospectus [Fund shares purchased prior to October 1, 2005 and not subsequently converted to Fidelity Advantage Class are deemed Investor Class shares]
2004 prospectus [Effective April 18, 1997, FMR has voluntarily agreed to reimburse the fund to the extent that total operating expenses ... exceed 0.19%.]
I don't think the price was always right when the market bid up Pets.com, Adelphia Communications, Enron, Worldcom, Washington Mutual, Lehman Brothers, tulip bulbs, etc. throughout history in past manias. But there are those who believe what you are saying. They're called efficient market theorists and would recommend only buying a total market index fund. I don't really understand, though, if you believe that, why you're posting on this board, which is devoted primarily to actively managed funds with managers who don't believe the price is always right. Those two philosophies--the price is always right or the price is often wrong and there are ways to get an edge on the market through active management--are incompatible. So if you don't mind my asking, why are you here?
The price over time is right as reflected in the SP500. Sure, there is a way for managed funds but over LT the SP500 performance is better than most managed funds. BTW, I have posted for years now that QQQ has been a better performer because the big high tech companies are winning so big. The SP500 is also a global index and gets about 40% of its revenues from abroad. QQQ is even more global with about 50% of its revenue from abroad.
Comments
Value investing was easier years ago when a good manager can find undervalued companies under the radar but in a digital, global, free data world it's a lot harder. High tech squeezes every corner in every business. To acquire the next customer for high tech companies is very cheap, sometimes pennies because the infrastructure exists already and digital is very cheap compared to actual stores and humans.
Some sectors are harder to break such as banking and finance but even they have been going down by joining the big tech. How long can you deceive clients by promising them better performance when a computer is cheaper and better. You can transfer now money to any person in seconds for free, just several years ago you had to pay a commission and took several days.
There are always new upcoming tech companies and when they do something well they explode very quickly because 1-5% lower price for the same (sometimes better) service means a lot. You can see it on Amazon if one company offers the same product for $1 cheaper and if the service is good it will take a huge % of the market. A reasonable customer will always pay less.
Real estate is another slow sector that will be more computerized.
The only sector that holds steady is healthcare, it gets more expensive with no end in sight IMO. There is no way to solve the HC issue in the USA. We can start a new thread on this.
That's important because it puts lie to the statement that "FXAIX didn't perform better because it didn't have a lower ER". Certainly ERs affect relative returns, but they're not dispositive, especially when the magnitude of a difference between funds is small.
"It would be very time consuming to find ER for previous years." So sometimes you don't "supply numbers". That's okay. But you presented a numeric claim, viz. that FXAIX had a higher ER all these years, without checking the numbers. That calls into question numbers posted without citations and links.
VFINX ER from current prospectus and from 1998 prospectus
2019: 0.14%
2018: 0.14%
2017: 0.14%
2016: 0.14%
2015: 0.16%
2014: 0.17%
1999-2013: between 0.17% and 0.19% (interpolation)
1998: 0.19%
1997: 0.19%
1996: 0.20%
1995: 0.20%
1994: 0.19%
1993: 0.19%
1992: 0.19%
1991: 0.20%
1990: 0.22%
1989: 0.21%
1998: 0.22%
FXAIX (and predecessor fund) ERs from:
current prospectus [On July 1, 2016, FMR reduced the management fee ... from 0.025% to 0.015%],
2011 prospectus [On February 1, 2011, FMR reduced the management fee ... from 0.07% to 0.025% ],
2005 prospectus [Fund shares purchased prior to October 1, 2005 and not subsequently converted to Fidelity Advantage Class are deemed Investor Class shares]
2004 prospectus [Effective April 18, 1997, FMR has voluntarily agreed to reimburse the fund to the extent that total operating expenses ... exceed 0.19%.]
1997 prospectus (showing actual expenses for 1988-1996)
2019: 0.015%
2018: 0.015% (per 2019 note)
2017: 0.015% (per 2019 note)
2016: 0.020% (per 2019 note and averaging over half year)
2015: 0.025% (per 2011 note)
2014: 0.025% (per 2011 note)
2013: 0.025% (per 2011 note)
2012: 0.025% (per 2011 note)
2011: 0.025%
2006-2010: 0.070% (per 2011 note and 2005 prospectus showing YE 0.07% ER)
2005: 0.090% (per 2005 note, weighted avg of share class ERs)
1998-2004: 0.190% (per 2004 note)
1997: 0.190%
1996: 0.280%
1995: 0.280%
1994: 0.280%
1993: 0.280%
1992: 0.280%
1991: 0.280%
1990: 0.280%
1989: 0.280%
1988: 0.280%
Sure, there is a way for managed funds but over LT the SP500 performance is better than most managed funds.
BTW, I have posted for years now that QQQ has been a better performer because the big high tech companies are winning so big.
The SP500 is also a global index and gets about 40% of its revenues from abroad. QQQ is even more global with about 50% of its revenue from abroad.