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FNILX vs. FZROX – Compare Fees, Performance, And More

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FZROX vs FNILX

If you are looking for investment ideas, index funds are a great way to do so. It’s well known that index funds have outperformed actively managed funds. There are many reasons why you would want to invest in an index fund rather than an actively managed one. Let’s look at a couple of reasons for that.

The first is that they don’t rely on a fund manager. Like the rest of us, fund managers can make errors and mistakes. The simple fact is that their main goal is to outperform the market. Doing so can entail taking risks. This means that while they can win out, this does not always happen.

Stock selection is much less risky in an index fund. This risk is much removed with index funds. The companies included in an index fund are based on a selection of well-performing investments. Thus they don’t rely on the predictions of other humans.

The fact that a team of highly skilled managers behind actively managed funds also means that they need to be paid. This usually means that these funds have much higher expense ratios than the passively managed ones.

They need less management means that those savings can be forwarded to those of us investing. In 2020, the expense ratios of actively managed funds had been sitting at around 0.71%. This drops to 0.06% for passively managed funds. In some cases, like the ones we’re looking at today, these fees are nonexistent.

So what exactly are these fee-less index funds that we’re talking about? Let’s take a look. This article will compare two Fidelity Zero Mutual funds: FNILX vs. FZROX. What do these different funds track? How do they compare to each other? These are all things that we’ll look over today.

Who are Fidelity Investments?

So first things first, let’s look at which firm gets us these investment products. Who are Fidelity Investments? We have covered them in the past in our last articles, but we still feel we should mention them.

Fidelity Investments is one of the most important investment firms in the world today. They were first established in Boston, Massachusetts, in 1946 and have made a massive splash in the investing space. With over 300 different Fidelity Funds offered and over 9000 different funds offered on their website, they have different ones for everyone.

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Thus they provide services for a wide variety of different customers. As such, they have become one of the largest asset managers in the world, with $4.2 trillion in assets under management. This ranges from 23 million people to over 20 thousand businesses managing employee benefits and 10 thousand investment advisors.

What is FNILX?

So, let’s take a look at what we have with FNILX.

The Fidelity ZERO Large Cap Index Fund is the zero exchange rate fund that tracks large-capitalization companies. This means that the fund looks to track and provide returns corresponding to the stocks of large-capitalization U.S. companies, all at zero expense ratio.

How do the Fidelity ZERO funds achieve this no expense ratio? Simply by investing in the Fidelity proprietary indexes and passing on fund transaction costs to investors.

The fact is that if they were to track an index made by another firm, they would have to pay a hefty licensing fee. This means that while they may not be tracking the famous Index, they track an equivalent to it.

Now, what is this equivalent Index that we’re talking about? This is the Fidelity U.S. Large Cap Index. FNILX invests at least 80% of the fund’s assets into common stocks found in the same.

What is the Fidelity U.S. Large Cap Index?

So, what exactly is this Index in question? The Fidelity U.S. Large Cap Index is Fidelity’s equivalent to the S&P 500. If you’ve seen our recent article on SPY vs. SPYG, you’ll already have an idea of what you can expect.

The Fidelity U.S. Large Cap Index tracks and comprises holdings of the top 500 companies traded on the U.S. stock market.

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Now, why would you want to invest in such an index? Well, the case is simple enough. Those 500 companies comprise well over 80% of the total value of the U.S. stock market.

This means that you have a great sample of the general trend of the U.S. as a whole. That being said, by investing in a large-cap index, you avoid the risk that the smaller capitalization section adds. All in all, large-capitalization indexes tend to be less volatile than their counterparts, including small and mid-cap stocks.

What Does FNILX Hold?

So, knowing that FNILX tracks a large-cap index, let’s look at what they do to do so. What exact companies do they track? As of September 2021, the FNILX has invested into 516 different holdings, the top ten of which are with weights:

Microsoft Corp: 6.2%Apple, Inc: 5.8%
Amazon.com, Inc: 3.6%Tesla, Inc: 2.2%
Alphabet, Inc. Class A: 2.2%Alphabet, Inc. Class C: 2.1%
Meta Platforms, Inc. Class A: 1.9%NVIDIA Corp: 1.6%
Berkshire Hathaway, Inc. Class B: 1.3%JPMorgan Chase & Co: 1.3%

Now, these 10 holdings already comprise 27.13% of the total portfolio. As one would expect, most of the ‘FAANG’ stocks are there. The FAANG stocks are those comprising Meta (F.B.) (Facebook), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG).

These have become the most important companies nowadays and thus have a prominent place in the U.S. markets.

Let’s take a look at how this company investment translates into sectors:

Information Technology: 29.41%Health Care: 13.17%
Consumer Discretionary: 12.52%Financials: 11.13%
Communication Services: 10.75%Industrials: 7.75%
Consumer Staples: 5.40%Energy: 2.62%
Real Estate: 2.55%Materials: 2.28%
Utilities: 2.23%Multi Sector: 0.17%

In this case, we can see that close to a third is held in the Information sector. The Healthcare, Consumer Discretionary, and Financial sectors are close together but take a clear step back. Neither of these sectors reaches half of this top sector’s representation.

What is FZROX?

Now, let’s look at the other contender in our FNILX vs. FZROX comparison. What is FZROX? This is the Fidelity ZERO Total Market Index fund. Unlike FNILX, this Index looks to track and provide returns corresponding to a broad range of U.S. stocks.

As discussed in the previous section, FZROX is part of the Fidelity ZERO funds. This means that investing in FZROX does not have any minimum investments, nor will you be charged expense ratios.

What is the Fidelity U.S. Total Investable Market Index?

FZROX invests at least 80% of its assets in common stocks included in the Fidelity U.S. Total Investable Market Index. Now, what exactly is that?

This Index is FIdelity’s proprietary Index. The same is a total market index. This means that it’s a weighted index designed to reflect the performance of the whole U.S. equity market. When talking about the whole U.S. equity market, this includes large, mid-, and small-capitalization stocks.

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This addition of mid and small-cap stocks means a little more volatile than the Large-Cap equivalent. This means that while falls maybe a little more significant, the gains from good times are expected to be higher. Said, fluctuations are more significant.

What Does FZROX Hold?

So now that we’ve seen the underlying Index let’s see what companies FZROX holds. Given that the fund looks to track the entirety of the U.S. equity market, you can expect it to have holdings in many more companies. This is so as the fund has a total of 2662 holdings as of September 2021.

The top ten of these are:

Microsoft Corp: 5.260%Apple, Inc: 4.967%
Amazon.com, Inc: 3.101%Tesla, Inc: 1.909%
Alphabet, Inc. Class A: 1.881% Alphabet, Inc. Class C: 1.766%
Meta Platforms, Inc. Class A: 1.629%NVIDIA Corp.: 1.345%
Berkshire Hathaway, Inc. Class B: 1.122%JPMorgan Chase & Co: 1.072%

The company holdings look very similar to what we already saw in FNILX. This is simply because these are the most important companies in the U.S. equity market right now. The difference is in the lower percentages. There are more holdings in the total market one. We can also see this in the percentages. The top ten is only 23.34% for FZROX compared to the 27% of FNILX.

In terms of sector distribution, it looks similar as well:

Information Technology: 27.25%Health Care: 13.09%
Consumer Discretionary: 12.52%Financials: 11.84%
Communication Services: 9.73%Industrials: 8.88%
Consumer Staples: 5.06%Real Estate: 3.37%
Energy: 2.73%Materials: 2.66%
Utilities: 2.30%Multi-Sector: 0.54%

The total market index has more percentage points in the lower portion of the sectors. Two examples are real estate and utilities, 0.82% and 0.38% above the FNILX representation. We can see that small and mid-cap representation there.

Comparing FNILX and FZROX

When comparing these two index funds, FNILX vs. FZROX, we compare a total index fund to a large-cap index. The fact is that we are looking at how the added volatility of a total market index reflects on the performance of the same. Given that both have the same expense ratios, there’s not much to talk about in fees.

So let’s see how they have performed over the years. The first thing to note is that both of these funds are young. Both funds were created in 2018, so there is no long-term historical data. That being said, let’s look at what we do have. One thing that we do know is that FZROX has consistently outperformed FNILX over the period we can see.

  • The 1-year average annual returns are +26.93% compared to +26.62% of the total market index. 
  • In the 3 years, the average annual returns were +20.98% compared to the 20.21%
  • And lastly, the lifetime returns that we can see show that the large-cap fund outperformed 17.67% to 17.14%.

This shows that the FZROX has been slightly more successful in recent times. Usually, one would believe that adding the smaller and mid-cap companies would result in larger returns given the added volatility. This doesn’t seem to have held up in the past few years.

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We can also mention which fund is more popular. At the time of writing, FZROX has $12 billion in net assets compared to the $5 billion of FNILX. It’s clear to see that large-cap fund has seen more people drawn to it.

We can never say which tool is best. While FZROX has seen better performance in recent times, we have to say that past performance does not guarantee future results. In this case, both are great options for you if you’re looking for cheap investment opportunities.

Final Thoughts on FZROX and FNILX

All this being said, we at TurboWallet are great fans of the Zero expense ratio index funds that Fidelity offers. They are a great option for anyone looking to invest but who doesn’t want to pay expensive fees.

Passively managed funds have become highly popular investment options for many people worldwide. If you remember, Warren Buffet won the bet he had with the hedge fund industry. In that bet, he wagered that a passively managed index would outperform a hand-picked portfolio over 10 years.

While in our case, these two indexes don’t have that 10-year track record, they are both still great investment options. Whether you like the total market index or the large-cap one, FNILX vs. FZROX, you will still see great returns over time.

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