FZROX vs FSKAX: Fidelity Zero Funds Head-to-Head
We’ve been looking at quite a lot of ETFs in the past few weeks here at TurboWallet. This is because we believe them to be some great investment tools that we can all use. These ETFs are quite similar to other tools that we will be looking at here.
But why do we go on about these financial instruments? Firstly, they are a great tool to gain exposure to a variety of different companies and holdings. This applies to the Index funds that we’re covering today as well. Both FZROX and FSKAX are two index funds that are what are known as Total Stock Market Funds.
Putting your money in a Total Stock Market Fund is a simple and cheap way to diversify your U.S. equity exposure. These usually charge extra-low expense ratios and, in some cases, like with FZROX, have no expense ratios at all.
Unlike FZROX, FSKAX does charge expense ratio fees, although very small ones. Given that free is better than little, why would someone go for the expensive one? Each fund relies on a different underlying index and methodology to track the U.S. stock market.
This article will give you an overview of how these two funds compare. We’ll be doing a head-to-head of FZROX vs. FSKAX. Who manages these funds? What differences are there between them? Which is best for you? These are all questions that we’ll be looking into in this article.
Who are Fidelity Investments?
First things first, let’s look at the ones that brought us these funds. Fidelity Investments Inc. is the investment firm behind the Mutual funds we’re looking at today. They are a financial services corporation based in Boston and were established in 1946 and made their foothold on the internet in 1995.
The firm has consistently provided investors with top-notch tools, research, and resources that have made it a force to be reckoned with. As such, they have become one of the largest asset managers in the world, with $4.2 trillion in assets under management.
What are the Fidelity Mutual Funds?
First things first, let’s look at the Fidelity Index Funds. Given that the same firm manages both FZROX and FSKAX let’s look at what all the Fidelity mutual funds have in common. First, just like all funds, these are all quite low costs. That being said, Fidelity provides a series of funds intended to have no expense ratios. These are the Fidelity ZERO funds.
If you’re thinking that not having expense ratios is too good to be true, you may be right. Investors cover a catch to these as transaction costs for the fund.
- Fidelity ZERO Large Cap Index Fund (FNILX): This fund tracks the Fidelity U.S. Large Cap Index. This is an equivalent index to the S&P 500. Thus, the fund tracks the top 500 companies based on market capitalization. Among these Fidelity Zero Funds, we can find the following:
- Fidelity ZERO Extended Market Index Fund (FZIPX): his fund tracks the Fidelity U.S. Extended Investable Market Index. This index is intended to track U.S. mid and small-capitalization stocks. They achieve this by excluding the top 500 stocks found in the Fidelity U.S. Total Investable Market Index. We’ll cover it later in this article if you’re wondering what that is.
- Fidelity ZERO International Index Fund (FZILX): Tracks the Fidelity Global ex. U.S. Index. This index is designed to track those mid and large-capitalization companies located outside the U.S.
- Fidelity ZERO Total Market Index Fund (FZROX): One of the funds we’re looking at today.
What is FZROX?
The Fidelity ZERO Total Market Index or FZROX is one of the most popular and unique funds. It was launched in 2018, advertising the zero expense ratio they carry. This no expense ratio is unique in this area.
That being said, this doesn’t mean that they are entirely free. Shareholders do still need to pay other fees, like the transaction fees of the fund.
What is the Fidelity U.S. Total Investable Market Index?
What exactly is the Fidelity U.S. Total Investable Market Index? Fidelity tracks what is known as the Fidelity U.S. Total Investable Market Index. This is an index designed to reflect the performance of the whole of the U.S. equity market.
This includes large, mid, and small-capitalization stocks. The same is also adjusted by market capitalization. This means that stocks with a larger market capitalization will have more representation in the index.
What does FZROX Hold?
In this way, the FZROX tracks the Fidelity U.S. Total Investable Market Index and does so by investing in at least 80% of assets found in the same.
What happens is that the same excludes companies with a market cap smaller than $75 million and a six-month trading volume of less than $25 million.
Now, let’s look at the companies that are included in FZROX. While the fund holds shares in over 2600 companies, the ten most important ones, holding 23.34% of the portfolio, 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%|
Let’s check out the sector holdings:
|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%|
This distribution for company and sector holdings is something that is to be expected for a total market index. This is because such an index tracks the most important markets in the U.S. If you’ve checked out our previous article on QQQ vs. VTI, this distribution will look quite familiar.
You will remember that VTI is an ETF that tracks the CRSP US Total Market Index and has similar weights in sectors. This is because of the importance of big-tech and healthcare in America.
What is FSKAX?
So now, let’s look at the second fund that we’re checking out today – the Fidelity Total Market Index Fund (FSKAX). While this seems quite similar to the FZROX, it tracks a different index. In this case, the Dow Jones U.S. Total Stock Market Index.
Unlike what happens in the FZROX fund, FSKAX does have an expense ratio of 0.015%. While this is a fee, this is still extremely low.
What is the Dow Jones U.S. Total Stock Market Index?
When talking about the FSKAX, we need to mention the index it tracks. So what is the Dow Jones U.S. Total Stock Market Index? Similar to the Fidelity U.S. Total Investable Market Index, it is a weighted total market capitalization index.
This means that it tracks the top 95% of the U.S. stock market based on market capitalization. That attempt includes most stocks in its index, although it excludes the smaller and least liquid stocks.
What does FSKAX hold?
So, now that we know what FSKAX tracks, let’s look at what it holds to go about this. As of November 2021, the fund holds shares in a total of 3875 different companies.
This is already much more than what we can find in the FZROX. This doesn’t necessarily mean that one is better than the other. Stated, the one with a smaller amount of holdings will cover a smaller share of the total market.
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%|
These companies cover a total of 22.92% of the whole portfolio. Now, we are pulling hairs here as these are similar. You can see quite some small differences in what these funds both hold. That being said, they both cover the same companies in general because they both reflect the overall U.S. market.
In terms of sector distribution:
|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%|
Once again, we’re looking at small differences between all of these total market indexes. The simple fact is that when looking at the same data, both methods will reach similar results.
Comparing FZROX Vs. FSKAX
Now that we know what both funds are, we can look at how they compare to each other. Let’s get into the meat of FZROX vs. FSKAX. First, as we already mentioned, both of these track different indexes. As these different indexes have different methods of tracking the total U.S. market, they will have different results.
Secondly, FZROX is much more recent than FSKAX. This means that we do not have that much information on the former’s performance over a long time. That being said, the same looks quite good.
When comparing both returns for FZROX and FSKAX, we can see that the 1-year returns for FZROX are +26.62% compared to +26.46% of FSKAX. In the 3 years, these amount to +20.21% compared to +20.18%. In the 5 years, we only have those for FSKAX, which is at +17.50.
We can see something similar in the graphs. These have performed very similarly across time. That being said, FZROX has been outperforming FSKAX by a small margin. That being said, we cannot say if this trend will continue over time.
Final Thoughts on FZROX and FSKAX
Total market index funds are a great tool to have for portfolio diversification. Fidelity achieves these Zero Fee funds by tracking their indexes and passing transactions over to you. If you are looking for means to do this without paying any expense ratio, the Fidelity ZERO Total Market Index Fund maybe your best option.
That being said, by investing in the Zero fee fund, you do lose out on the number of holdings invested in. This goes from only 2600+ compared to the over 3000 different companies invested in. That being said, both options are a great tool for you to have when looking at investment opportunities.
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