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Fidelity Investments has announced real-time fractional share trading for stocks and ETFs. That means investors can build their portfolios with dollar amounts they want to invest or have available regardless of how much a share of a stock or an ETF costs.
This announcement follows on the heels of eliminating trading commissions, first by Schwab and then by Fidelity, in late 2019. Fractional share trading is sometimes called dollar-based investing, and it allows investors to buy as little as .001 of a share of a stock or an ETF—but only on Fidelity’s Mobile app starting today.
Fidelity spokesperson Robert Beauregard said there wasn’t a time frame yet to roll out fractional share trading on Fidelity.com or the firm’s Active Trader Pro platform. Beauregard noted that customer visits to Fidelity occur slightly more often through the mobile apps (52%) versus the firm’s website (48%). He did not provide a breakdown of trading done via Fidelity’s mobile app versus website or trading platform.
Beauregard also said Fidelity’s 401(k) participants whose retirement plans have brokerage capabilities would be allowed to trade fractional shares through the phone apps.
The mutual fund industry has grown with the rise of 401(k)s in part because mutual funds are organized in a way that allows for fractional share or dollar-based purchases. That has been convenient to employees investing odd amounts of money in funds every pay period.
Mutual funds trade once a day—at market close when they strike a net asset value of their underlying holdings. ETFs, by contrast, trade more like stocks, throughout the day during market hours, and they haven’t been organized to trade in a dollar-based way. Fidelity’s allowing for dollar-based trading potentially lets them to become main holdings in 401(k)s even for participants who don’t have brokerage accounts attached to their 401(k) plan.
For all their success and popularity, traditional mutual funds have been losing market share to ETFs outside of 401(k)s. That’s partly the result of the popularity of indexing (ETFs are mostly index-tracking funds) and partly because of preference among younger investors.
Beauregard wouldn’t comment about the potential for ETFs in 401(k)s, but Fidelity is one of the largest 401(k) providers.
Write to John Coumarianos at john.coumarianos@barrons.com