Fidelity 500 (FXAIX) vs Total Market (FSKAX)
Here at Turbowallet, we have started getting into various financial instruments that are available to us as investors. In these vs. series, we have compared a variety of different ETFs. If you’re looking to review these, take a look at our Investing page.
Now we’re going into different index funds. Index funds are a type of mutual fund or ETF that track a specific financial market index. While some index funds can be exchange-traded, not all are.
The ones that we’re looking at today are mutual funds. In this case, an investor buys a share in a pool of money that the fund managers later invest. Unlike an ETF, these cannot be traded on an exchange.
So why would you choose a mutual fund over an ETF? There are multiple reasons for that. The first is variety. Simply put, there are way more mutual funds out there, and thus there is a bunch that you can choose from.
There are much fewer ETFs and variations thereof. This means that by investing in a mutual fund, you can more easily find the right one for you. You would be much more hard-pressed to find a specific one as an ETF.
The second reason is the lack of commission fees. The simple fact is that given that they are traded on an exchange when buying an ETF, you have to pay the broker fees that come with the same. This does not apply when investing in a mutual fund.
The third reason that we’ll give is service quality. Being a shareholder in a mutual fund means getting some attention from the fund manager. This means phone support and possibly free fund transfers. Given the typically lower expense ratios, these would fall out of the scope of what can be provided by an ETF.
So what exactly are these great mutual funds that we’re looking into today? In this article, we’ll be comparing two of the index funds provided by Fidelity. We’ll be comparing FXAIX vs. FSKAX.
What do they track? Who are they made by? How do they compare to each other?
Who is Fidelity Investments?
Although we’ve already given you an idea of who Fidelity Investments are in our FZROX vs. FSKAX article, we still want to give you a short overview of who they are here. Fidelity Investments Inc is one of the most important investment firms today, so we want to shine a light on them.
Founded in 1946 and based in Boston, Massachusetts, Fidelity provides various investment opportunities to people around the world. It does this by focusing on various customers, with 23 million people investing their life savings to over 20 thousand businesses managing employee benefits and even 10 thousand investment advisors.
It offers a diverse selection of investment tools catered to the needs of each one. Such options are the plethora of ETFs and mutual funds like the ones we’re covering today.
What is FXAIX?
What is the first fund that we’re looking at offered by Fidelity? Let’s look at FXAIX. What exactly is it? It is the symbol for the Fidelity 500 Index Fund. This fund is a mutual fund that tracks the S&P 500. If you think that this sounds familiar, you are correct. We’ve already covered an ETF that tracks the same index in a previous article. where the SPY ETF was the one that tracked it.
FXAIX is one of Fidelity’s most popular and oldest mutual funds. It was launched in 1988 and has since become one of the most popular ones that the Investment firm offers. It’s a great option as a low-cost S&P 500 index fund given the low expense ratio of only 0.015% and no minimum investment.
With $379 billion in assets under management, it’s clear to see that a lot of people like it.
What is the S&P 500?
So now that we’ve been able to get an idea of the FXAIX index fund let’s get a quick overview of what it tracks.
The Standard and Poor’s 500 is one of the most well-known indexes out there. It follows the performance of the top 500 companies listed on stock exchanges in the U.S. These 500 companies are enough to cover 80% of available market capitalization.
By just tracking 500 companies, you already get a great idea of how the U.S. market is going.
By investing in an index fund that tracks the S&P 500, you are essentially putting a bet on the U.S. market as a whole. Given that the U.S. and American companies are among the most important ones in the world, you are investing in the world powerhouse.
What does FXAIX Hold?
So let’s see what the FXAIX holds that makes it a powerhouse? As of the end of September 2021, the fund holds 508 different holdings. Of these, the top ten in weight are:
|Microsoft Corp: 6.358%||Apple, Inc: 6.002%|
|Amazon.com, Inc: 3.748%||Tesla, Inc: 2.306%|
|Alphabet, Inc. Class A: 2.275%||Alphabet, Inc. Class C: 2.132%|
|Meta Platforms, Inc. Class A: 1.968%||NVIDIA Corp: 1.626%|
|Berkshire Hathaway, Inc. Class B: 1.357%||JPMorgan Chase & Co. 1.295%|
These 10 holdings comprise 28.07% of the total portfolio. So how does that translate to sector distribution? Let’s take a look:
|Information Technology: 27.85%||Health Care: 12.98%|
|Consumer Discretionary: 12.78%||Financials: 11.37%|
|Communication Services: 10.80%||Industrials: 8.01%|
|Consumer Staples: 5.58%||Energy: 2.85%|
|Real Estate: 2.59%||Materials: 2.48%|
|Utilities: 2.40%||Multi-Sector: 0.30%|
As expected in the world right now, we can see that the tech world holds over a quarter of the fund’s weight. This means that the fund is highly susceptible to changes in that sector. That being said, any fund that does track the U.S. markets will have a similar distribution. This is simply a consequence of the importance of that area nowadays.
What is FSKAX?
So now that we’ve seen the FXAIX let’s take a look at the FSKAX. This is the Fidelity Total Index Fund that tracks the Dow Jones U.S. Total Stock Market Index. The fund’s inception was in 1997, making it a little younger than the FXAIX.
That doesn’t mean that it’s any worse. With close to $74 billion in total assets, it still sets a marker as a popular investment. It’s easy to see why. Like the FXAIX, the fund does not have any minimum investment and the same tiny expense ratio of only 0.015%.
What is the Dow Jones U.S. Total Stock Market Index?
So what exactly is the underlying index of FSKAX?
The Dow Jones U.S. Total Stock Market Index or DWCF is one of the most important total market indexes. As a total market index, the same tries to represent the entirety of the U.S. market. Unlike the S&P 500 that only tracks the largest 500 companies, the Dow Jones tracks many more. Just compare those 500 to the 4,000+ of the Dow Jones.
This means that it can hold a wider variety of different stocks. Thus, the total index holds large-cap and med- and small-cap companies.
This makes it more of a representation of the whole U.S. stock market as it tracks the top 95% of the same. Now, the weighting is based on market capitalization, which means that those large companies will still have a massive influence.
What does FSKAX hold?
So now that we know what the Dow Jones is let’s take a look at how the FSKAX keeps track of the same. While it does not hold all of those that the DSFW does, it holds most of them. Of these 3800+ holdings, the top ten are:
|Microsoft Corp: 5.2%||Apple, Inc: 4.9%|
|Amazon.com, Inc: 3.1%||Alphabet, Inc. Class A: 1.9%|
|Tesla, Inc: 1.9%||Alphabet, Inc. Class C: 1.7%|
|Meta Platforms, Inc. Class A: 1.6%||NVIDIA Corp.: 1.3%|
|Berkshire Hathaway, Inc. Class B: 1.1%||JPMorgan Chase & Co.: 1.1%|
In terms of sector distribution, this falls as:
|Information Technology: 27.23%||Health Care: 13.17%|
|Consumer Discretionary: 12.62%||Financials: 11.90%|
|Communication Services: 9.69%||Industrials: 8.94%|
|Consumer Staples: 5.05%||Real Estate: 3.38%|
|Energy: 2.83%||Materials: 2.66%|
|Utilities: 2.29%||Multi Sector: 0.27%|
Here we can see that this results in a very similar distribution as what we’ve already seen in FXAIX. The simple matter is that the added 15% in the representation of the U.S. market does not change all that much. What we can see is that the FSKAX is a bit less top-heavy. We can see that the tech sector is a little less represented while putting a little more into health care.
Comparing FXAIX Vs. FSKAX
Comparing FXAIX vs. FSKAX is similar to comparing the Dow Jones Total Stock Market to the S&P 500. The difference between them is essential that the former includes large-capitalization stocks and mid and small-cap ones. The S&P and thus FSKAX only hold large-cap ones.
Traditional thinking claims that small-cap stocks outperform large-cap stocks in the long term. This would mean that our FXAIX would outperform FSKAX in the long term. So how does that track with what we can see?
Unfortunately, that thinking has not exactly tracked will in the past years.
In the short term of 1-year returns, the FSKAX has seen better returns of 32.11% compared to the 29.99% returns of the large-cap fund.
Over three years, these have been tracked very similarly. In this case, the FXAIX has seen returns of 15.98% compared to 15.96% of FSKAX. In the five years, this small separation continues with 16.88% of the former and 16.83% of the latter.
Over ten years, we can see the Fidelity FSKAX outperform the Total market index tracker. In this case, the returns are separated by 0.06% as FXAIX has seen returns of 16.62% compared to 16.56%.
That being said, total stock market indexes are only a little more diversified than the S&P 500. Both are heavily weighted towards the large-capitalization stocks, they will naturally look very similar.
A good idea for investments in such cases where you want to have a more diverse spread is compensating your investments into these funds with a spread of other mutual funds. In this case, a great idea is to also invest in funds that track small-cap and mid-cap indexes.
Final Thoughts on FSKAX vs. FXAIX
Ultimately, when looking at FXAIX versus FSKAX, you’re considering what you want more. The Dow Jones or the S&P 500.
Although they track very different indexes, they are both excellent tools and a great representation of the U.S. market as a whole. When investing in any of these options, you are betting on the biggest and the greatest economy in the world. It’s as simple as that.
Both mutual funds are a great way for those interested in passive investment strategies to own a broadly diversified basket of stocks.
Ultimately, it just comes down to the added fact that the FSKAX does also hold those mid- and small-cap stocks. That little bit adds a tiny bit more volatility to the mix. It’s as simple as that. Either way, we like both options here at TurboWallet. Whichever you go for, we support you.
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