Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

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SelfEmployed123
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Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by SelfEmployed123 » Wed Aug 22, 2018 6:24 pm

[The facts in this post are incorrect, see comments below --admin LadyGeek]

Fidelity investor here. I recall reading through all of the posts after Fidelity announced their Zero ER funds a few weeks ago. It's been about 3 weeks, so I wanted to check in and see if I should jump on the bandwagon and change my portfolio. After 3 weeks of trading here are the results:

Code: Select all

Symbol 3-Aug 22-Aug %Return %Change
FSIVX 42.6   42.18   0.9901   -0.99%
FZILX 10.03   9.89   0.9860   -1.40%
FSTVX 81.89   82.85   1.0117   1.17%
FZROX 10.04   10.15   1.0110   1.10%
It has not been a great few weeks for international stocks. However, Fidelity International Index Fund Premium Class (FSIVX) has decreased 41 fewer basis points than the equivalent Fidelity ZERO fund. Meanwhile domestic stocks have had a better few weeks. In that time Fidelity Total Market Index Fund Premium Class has increased 7 more basis points than the equivalent Fidelity ZERO fund. My conclusions, which are highly tentative:

1) It's interesting that both ZERO funds are providing lower returns than their equivalent premium class index fund.

2) There are definitely important aspects of these funds other than expense ratio that can influence fund returns. Fidelity has announced it created proprietary indexes for their ZERO funds to follow, so the premium class funds are not following the same benchmark. Different index may result in different returns.

3) If this trend continues, the potential higher return of traditional premium class index funds will more than make up for the low fees one pays to be in those funds.

4) It's far too early to draw any conclusions, but I think it would be prudent to continue watching this. I won't be converting my premium index fund shares to the ZERO ER funds any time soon.
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

mervinj7
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by mervinj7 » Wed Aug 22, 2018 6:37 pm

Why not compare against Fidelity Total International (FTIPX) instead of Fidelity International? Fidelity International only includes developed markets large cap.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by Jack FFR1846 » Wed Aug 22, 2018 6:46 pm

I think you've captured the important parameters.

I think if I were going to really do a comparison, I'd wait a bit longer and then perhaps do comparison graphs for FSTVX, FZROX, SCHB, and VTI. To me, these are all instruments that follow some assortment targeting total US stocks. Each follows a different basket of stocks. I would indeed expect that they'll all look similar over time. I don't think it's time to draw conclusions yet. Way too early. I do watch FSTVX and FZROX as I have split my Fidelity US stock allocation in half between these 2. Easy for me to check them every night.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by jhfenton » Wed Aug 22, 2018 6:50 pm

1. I'd say the difference between ZERO Total Market and Premium Total Market is within possible rounding error.
2. ZERO International has emerging markets, so it should be compared to FTIPX, as mervinj7 points out. Once you do that, I think you'll see little to no difference.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by PhilosophyAndrew » Wed Aug 22, 2018 6:55 pm

OP, does a scant three weeks’ worth of data provide us with any reason to act? Why?

I’m unclear what the point is of making this analysis now, when there is so little data to analyze.

Andy.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by nisiprius » Wed Aug 22, 2018 7:11 pm

SelfEmployed123 wrote:
Wed Aug 22, 2018 6:24 pm
...a few weeks ago...
It seems to be very common for funds to have glitches or startup issues in the first six to twelve months of operation.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by sambb » Wed Aug 22, 2018 7:14 pm

We have to ask if fidelity zero + fidelity service > vanuard index + vanguard service
to many, fidelity will win that equation, to others they wont.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by farnsy » Wed Aug 22, 2018 7:19 pm

In a mutual fund, the transactions costs of purchasing stock as new cash flows in folded into the fund's return. They are not counted as part of the expense ratio. Normally these costs are relatively small. However, for a brand new fund like these zero funds, the transactions could be very significant. For this reason I will not be putting money in them until the AUM's have stabilized.

I think that's what's going on.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by Spirit Rider » Wed Aug 22, 2018 7:28 pm

Report 1 year returns on 1/2/2019, throwing out the first five months and then maybe it will be a useful benchmark.

I never commit to anything until it has seasoned for at least a year. Mutual funds, new car models or generations, new computer software or versions, new cell phones or models, potential mates, etc...

SelfEmployed123
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by SelfEmployed123 » Wed Aug 22, 2018 7:31 pm

jhfenton wrote:
Wed Aug 22, 2018 6:50 pm
1. I'd say the difference between ZERO Total Market and Premium Total Market is within possible rounding error.
2. ZERO International has emerging markets, so it should be compared to FTIPX, as mervinj7 points out. Once you do that, I think you'll see little to no difference.
I had originally included FSIVX because that was what the Bogleheads wiki said to invest in for the 3 fund Portfolio. I did run the numbers comparing FTIPX to FZILX. Both funds decreased over the short time period, but FTIPX decreased by 68 fewer basis points. I really do wonder whether 68 basis points is a significant difference. Many posters seemed very excited about saving 11 basis points over one year by getting into the International ZERO ER index fund.
PhilosophyAndrew wrote:
Wed Aug 22, 2018 6:55 pm
OP, does a scant three weeks’ worth of data provide us with any reason to act? Why?

I’m unclear what the point is of making this analysis now, when there is so little data to analyze.

Andy.
Many posters were excited about saving 11 or 6 basis points per year by transferring to the ZERO ER funds. The purpose of the post is to emphasize with some simple numbers that there are additional important things to consider in a mutual fund than ER. Also, for any posters currently considering the switch this post may give them pause. I will be running the numbers again for myself moving forward. Would be happy to continue posting as more time goes by.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by willthrill81 » Wed Aug 22, 2018 7:54 pm

As others have noted, it's too early to call this one, but it's very possible that the 1-4 basis point savings in ER with Fidelity's new funds may be more than offset by tracking error alone.
SelfEmployed123 wrote:
Wed Aug 22, 2018 7:31 pm
Many posters were excited about saving 11 or 6 basis points per year by transferring to the ZERO ER funds. The purpose of the post is to emphasize with some simple numbers that there are additional important things to consider in a mutual fund than ER. Also, for any posters currently considering the switch this post may give them pause. I will be running the numbers again for myself moving forward. Would be happy to continue posting as more time goes by.
Just a couple of weeks ago, several posters were complaining that we were just a bunch 'Vanguard is the best' folks who only cared about ERs when Vanguard had lower ERs than everyone else but disregarded them when Vanguard's were higher. This is preliminary evidence that we may have been right when we said that saving a few basis points in ER is not all there is when it comes to fund selection.

Costs do indeed matter, but they don't tell the whole tale.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by jhfenton » Wed Aug 22, 2018 8:09 pm

SelfEmployed123 wrote:
Wed Aug 22, 2018 7:31 pm
I had originally included FSIVX because that was what the Bogleheads wiki said to invest in for the 3 fund Portfolio. I did run the numbers comparing FTIPX to FZILX. Both funds decreased over the short time period, but FTIPX decreased by 68 fewer basis points. I really do wonder whether 68 basis points is a significant difference. Many posters seemed very excited about saving 11 basis points over one year by getting into the International ZERO ER index fund.

Code: Select all

FTIPX	 $12.25 	 $12.10 	 $(0.15)	-1.22%
FZILX	 $10.03 	 $9.89 		 $(0.14)	-1.40%
There is a small difference, but it's not 68 basis points. It's also barely within the margin of rounding, meaning that it's possible that at the hundredth of a cent level they've had exactly the same performance.

Code: Select all

FTIPX	 $12.2549 	 $12.0951 	 $(0.1598)	-1.30%
FZILX	 $10.0251 	 $9.8949 	 $(0.1302)	-1.30%
In other words, it's too early to draw any conclusions.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by patrick » Wed Aug 22, 2018 8:21 pm

It seems unlikely that all the prices would happen to be at the extreme edges of the possible ranges to explain the whole difference with rounding error. I'd agree that we can't really decide on these numbers though, but would be more likely to assume the differences are startup issues for a new fund.

SelfEmployed123
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by SelfEmployed123 » Wed Aug 22, 2018 8:25 pm

jhfenton wrote:
Wed Aug 22, 2018 8:09 pm
SelfEmployed123 wrote:
Wed Aug 22, 2018 7:31 pm
I had originally included FSIVX because that was what the Bogleheads wiki said to invest in for the 3 fund Portfolio. I did run the numbers comparing FTIPX to FZILX. Both funds decreased over the short time period, but FTIPX decreased by 68 fewer basis points. I really do wonder whether 68 basis points is a significant difference. Many posters seemed very excited about saving 11 basis points over one year by getting into the International ZERO ER index fund.

Code: Select all

FTIPX	 $12.25 	 $12.10 	 $(0.15)	-1.22%
FZILX	 $10.03 	 $9.89 		 $(0.14)	-1.40%
There is a small difference, but it's not 68 basis points. It's also barely within the margin of rounding, meaning that it's possible that at the hundredth of a cent level they've had exactly the same performance.

Code: Select all

FTIPX	 $12.2549 	 $12.0951 	 $(0.1598)	-1.30%
FZILX	 $10.0251 	 $9.8949 	 $(0.1302)	-1.30%
In other words, it's too early to draw any conclusions.
Was using google to look up prices earlier. They must not have had an updated NAV.
"Get what you can, and what you get hold, 'Tis the stone that will turn all your lead into gold." | -Benjamin Franklin

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by dragon8080 » Wed Aug 22, 2018 8:32 pm

I would say its way to early to tell how FZROX is doing. Wait a few quarters, see what dividend payouts are and compare with others like VTSAX. Plus, this and FZILX are being offered since Fidelity is hoping you'll switch all of your accounts with them and when you do they're hoping you end up purchasing some of their more expensive funds. How the performance goes for FZROX or FZILX goes remains to be seen.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by mervinj7 » Wed Aug 22, 2018 10:20 pm

SelfEmployed123 wrote:
Wed Aug 22, 2018 8:25 pm

Was using google to look up prices earlier. They must not have had an updated NAV.
So, are you going to update your original post with the right comparison fund for international and accurate to the hundredth decimal? Also, the wiki did list FTIPX as the suggested Fidelity international fund before the latest changes this month. I know because I'm the one who made the change in June 2016. :wink:

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by passiveTiger » Wed Aug 22, 2018 10:20 pm

SelfEmployed123 wrote:
Wed Aug 22, 2018 6:24 pm
Fidelity investor here. I recall reading through all of the posts after Fidelity announced their Zero ER funds a few weeks ago. It's been about 3 weeks, so I wanted to check in and see if I should jump on the bandwagon and change my portfolio. After 3 weeks of trading here are the results:

Code: Select all

Symbol 3-Aug 22-Aug %Return %Change
FSIVX 42.6   42.18   0.9901   -0.99%
FZILX 10.03   9.89   0.9860   -1.40%
FSTVX 81.89   82.85   1.0117   1.17%
FZROX 10.04   10.15   1.0110   1.10%
It has not been a great few weeks for international stocks. However, Fidelity International Index Fund Premium Class (FSIVX) has decreased 41 fewer basis points than the equivalent Fidelity ZERO fund. Meanwhile domestic stocks have had a better few weeks. In that time Fidelity Total Market Index Fund Premium Class has increased 7 more basis points than the equivalent Fidelity ZERO fund. My conclusions, which are highly tentative:

1) It's interesting that both ZERO funds are providing lower returns than their equivalent premium class index fund.

2) There are definitely important aspects of these funds other than expense ratio that can influence fund returns. Fidelity has announced it created proprietary indexes for their ZERO funds to follow, so the premium class funds are not following the same benchmark. Different index may result in different returns.

3) If this trend continues, the potential higher return of traditional premium class index funds will more than make up for the low fees one pays to be in those funds.

4) It's far too early to draw any conclusions, but I think it would be prudent to continue watching this. I won't be converting my premium index fund shares to the ZERO ER funds any time soon.
FZILX and FSIVX are not comparable. FSIVX is developed markets only. FZILX includes emerging markets. It’s kind of like comparing VXUS and VEA. Of course, FZILX is not doing as well. Emerging markets were recently getting hammered from Turkey handwringing. EM dropped 3% on just one day last week. If you have VWO or VEMAX, EM decline was noticeable.

But FZILX is not like VXUS either. Fidelity states that FZILX is large and mid cap developed and emerging market stocks. That implies small caps are not in there.

“The fund seeks to provide investment results that correspond to the total return of foreign developed and emerging stock markets. Normally investing at least 80% of assets in securities included in the Fidelity Global ex U.S. Index and in depository receipts representing securities included in the index. The Fidelity Global ex U.S. Index is a float-adjusted market capitalization-weighted index designed to reflect the performance of non-U.S. large- and mid-cap stocks.”

I think what is more interesting to follow is whether the small cap return in VXUS/VTIAX is worth the 0.11% ER compared to no small caps in FZILX and a 0.00% ER.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by olivertwist » Wed Aug 22, 2018 10:44 pm

SelfEmployed123 wrote:
Wed Aug 22, 2018 6:24 pm
Fidelity investor here. I recall reading through all of the posts after Fidelity announced their Zero ER funds a few weeks ago. It's been about 3 weeks, so I wanted to check in and see if I should jump on the bandwagon and change my portfolio. After 3 weeks of trading here are the results:

Code: Select all

Symbol 3-Aug 22-Aug %Return %Change
FSIVX 42.6   42.18   0.9901   -0.99%
FZILX 10.03   9.89   0.9860   -1.40%
FSTVX 81.89   82.85   1.0117   1.17%
FZROX 10.04   10.15   1.0110   1.10%
It has not been a great few weeks for international stocks. However, Fidelity International Index Fund Premium Class (FSIVX) has decreased 41 fewer basis points than the equivalent Fidelity ZERO fund. Meanwhile domestic stocks have had a better few weeks. In that time Fidelity Total Market Index Fund Premium Class has increased 7 more basis points than the equivalent Fidelity ZERO fund. My conclusions, which are highly tentative:

1) It's interesting that both ZERO funds are providing lower returns than their equivalent premium class index fund.

2) There are definitely important aspects of these funds other than expense ratio that can influence fund returns. Fidelity has announced it created proprietary indexes for their ZERO funds to follow, so the premium class funds are not following the same benchmark. Different index may result in different returns.

3) If this trend continues, the potential higher return of traditional premium class index funds will more than make up for the low fees one pays to be in those funds.

4) It's far too early to draw any conclusions, but I think it would be prudent to continue watching this. I won't be converting my premium index fund shares to the ZERO ER funds any time soon.
Over a 3 week period, and comparing them to the wrong benchmarks, you're going to see differences. You won't find a true answer for years. I think it's prudent to look at the zero-ER in the long-run (20+ year, assuming it sticks) as a 5 figure benefit depending on your investment size.

You are ultimately going to have to decide if you have faith in Fidelity or not.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by whodidntante » Wed Aug 22, 2018 10:46 pm

I used the $39 in cash in my Roth to invest in the ZERO International Fund. Does this mean I'll have to spend another five minutes working before I can retire?

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by stlutz » Wed Aug 22, 2018 10:49 pm

Nothing to add except to say that I love this thread. One of the best things about the forum is the desire to scrutinize everything--including someone else's scrutiny. :sharebeer

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by FIREchief » Thu Aug 23, 2018 3:31 pm

SelfEmployed123: thanks for starting this thread!! I was wondering how they are comparing, but had been too lazy to look up the numbers. I'm US centric, so the comparison of FSTVX to FZROX is my only area of interest.
SelfEmployed123 wrote:
Wed Aug 22, 2018 7:31 pm
Also, for any posters currently considering the switch this post may give them pause. I will be running the numbers again for myself moving forward. Would be happy to continue posting as more time goes by.
Please do continue to post those. I'll admit to having considered a quick flop to FZROX in my retirement accounts, but held off waiting to see how this all plays out. I tend to follow SpiritRider in not jumping on anything when it is first introduced (well, maybe "jumping on" isn't the best term for one of the examples he mentioned.)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by GoldStar » Thu Aug 23, 2018 3:34 pm

SelfEmployed123 wrote:
Wed Aug 22, 2018 8:25 pm
jhfenton wrote:
Wed Aug 22, 2018 8:09 pm
SelfEmployed123 wrote:
Wed Aug 22, 2018 7:31 pm
I had originally included FSIVX because that was what the Bogleheads wiki said to invest in for the 3 fund Portfolio. I did run the numbers comparing FTIPX to FZILX. Both funds decreased over the short time period, but FTIPX decreased by 68 fewer basis points. I really do wonder whether 68 basis points is a significant difference. Many posters seemed very excited about saving 11 basis points over one year by getting into the International ZERO ER index fund.

Code: Select all

FTIPX	 $12.25 	 $12.10 	 $(0.15)	-1.22%
FZILX	 $10.03 	 $9.89 		 $(0.14)	-1.40%
There is a small difference, but it's not 68 basis points. It's also barely within the margin of rounding, meaning that it's possible that at the hundredth of a cent level they've had exactly the same performance.

Code: Select all

FTIPX	 $12.2549 	 $12.0951 	 $(0.1598)	-1.30%
FZILX	 $10.0251 	 $9.8949 	 $(0.1302)	-1.30%
In other words, it's too early to draw any conclusions.
Was using google to look up prices earlier. They must not have had an updated NAV.
To be clear - for those of us that are slow - you are saying the original statements weren't really true?
Perhaps go back and update your original post - folks are still responding to your original statements as if they are factual.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by MikeMak27 » Thu Aug 23, 2018 3:43 pm

This was a terribly misleading posts with incorrect numbers, facts, and comparisons. The mods should delete and lock this thread.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by camaro327 » Thu Aug 23, 2018 8:19 pm

I watched FZROX and FSTVX since the launch. It’s totally rounding error at this point. We won’t know much until a few months have passed in regards to a performance comparison.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by Whakamole » Fri Aug 24, 2018 12:12 am

MikeMak27 wrote:
Thu Aug 23, 2018 3:43 pm
This was a terribly misleading posts with incorrect numbers, facts, and comparisons. The mods should delete and lock this thread.
I just reported it to the mods.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by LadyGeek » Fri Aug 24, 2018 6:28 am

Remember that this forum is here to help educate. If a mistake has been made, we'll show what's wrong and how to correct it.

Let's give the OP an opportunity to correct the post.* Until that happens, I've updated the post so readers will not be misled.

SelfEmployed123 - Please bump the thread when the update has been made. If you don't understand what's wrong, feel free to ask for help.

* Members can edit their posts at any time by clicking on the "pencil" icon in the top-right corner of the post.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by jhfenton » Fri Aug 24, 2018 8:07 am

patrick wrote:
Wed Aug 22, 2018 8:21 pm
It seems unlikely that all the prices would happen to be at the extreme edges of the possible ranges to explain the whole difference with rounding error. I'd agree that we can't really decide on these numbers though, but would be more likely to assume the differences are startup issues for a new fund.
I agree on the ZERO international fund. It's likely the real difference was somewhere between the apparent 18 bp and the possible 0 bp difference at the extreme edge of rounding error.

On the ZERO US fund, the difference looked well within the margin of rounding.

And I would not look too unfavorably on a new fund shedding a few basis points on startup. It has to be the most difficult time to manage an index fund, and it's one reason that I would not have moved any money into the funds for a few months, even if I'd already been at Fidelity invested in the equivalent Fidelity funds paying a few bp in expenses.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by Greg in Idaho » Fri Aug 24, 2018 8:32 am

so if your investing time-frame is 3 weeks, then you might want to think twice...got it

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by Medlabscientist » Fri Aug 24, 2018 12:49 pm

Not sure if anyone else mentioned this yet...

The zero index funds are not actually index funds that hold the actual stocks. Fidelity came up with a formula that lets them buy some of the stocks to save money, but they don't actually hold the whole market weighted index.

I was listening to some show explain this, but these zero funds may have a tracking error because in order to save money on costs, Fidelity is using a secret formula to skirt around buying all the stocks.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by TIAX » Fri Aug 24, 2018 1:00 pm

Medlabscientist wrote:
Fri Aug 24, 2018 12:49 pm
Not sure if anyone else mentioned this yet...

The zero index funds are not actually index funds that hold the actual stocks. Fidelity came up with a formula that lets them buy some of the stocks to save money, but they don't actually hold the whole market weighted index.

I was listening to some show explain this, but these zero funds may have a tracking error because in order to save money on costs, Fidelity is using a secret formula to skirt around buying all the stocks.
Many index funds don't use full replication. One example being the Vanguard Total Stock Market Index Fund. According to the prospectus:
Principal Investment Strategies
The Fund employs an indexing investment approach designed to track the performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and microcap stocks regularly traded on the New York Stock Exchange and Nasdaq. The Fund invests by sampling the Index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the full Index in terms of key characteristics. These key characteristics include industry weightings and market capitalization, as well as certain financial measures, such as price/earnings ratio and dividend yield.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by lifeisinmirrors » Fri Aug 24, 2018 1:56 pm

jhfenton wrote:
Fri Aug 24, 2018 8:07 am
patrick wrote:
Wed Aug 22, 2018 8:21 pm
It seems unlikely that all the prices would happen to be at the extreme edges of the possible ranges to explain the whole difference with rounding error. I'd agree that we can't really decide on these numbers though, but would be more likely to assume the differences are startup issues for a new fund.
I agree on the ZERO international fund. It's likely the real difference was somewhere between the apparent 18 bp and the possible 0 bp difference at the extreme edge of rounding error.

On the ZERO US fund, the difference looked well within the margin of rounding.

And I would not look too unfavorably on a new fund shedding a few basis points on startup. It has to be the most difficult time to manage an index fund, and it's one reason that I would not have moved any money into the funds for a few months, even if I'd already been at Fidelity invested in the equivalent Fidelity funds paying a few bp in expenses.
I don't think a few basis points are that significant in general, but they are significant in a context where Fidelity is marketing these funds entirely based on saving a few basis points.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by FIREchief » Fri Aug 24, 2018 1:58 pm

lifeisinmirrors wrote:
Fri Aug 24, 2018 1:56 pm
I don't think a few basis points are that significant in general,
It all depends upon how much money you have and how long you expect it to remain invested.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by UpsetRaptor » Fri Aug 24, 2018 2:00 pm

Spirit Rider wrote:
Wed Aug 22, 2018 7:28 pm
I never commit to anything until it has seasoned for at least a year. Mutual funds, new car models or generations, new computer software or versions, new cell phones or models, potential mates, etc...
OT, but whatcha planning on doing for tax software in a few months. :P

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by jhfenton » Fri Aug 24, 2018 2:10 pm

lifeisinmirrors wrote:
Fri Aug 24, 2018 1:56 pm
jhfenton wrote:
Fri Aug 24, 2018 8:07 am
patrick wrote:
Wed Aug 22, 2018 8:21 pm
It seems unlikely that all the prices would happen to be at the extreme edges of the possible ranges to explain the whole difference with rounding error. I'd agree that we can't really decide on these numbers though, but would be more likely to assume the differences are startup issues for a new fund.
I agree on the ZERO international fund. It's likely the real difference was somewhere between the apparent 18 bp and the possible 0 bp difference at the extreme edge of rounding error.

On the ZERO US fund, the difference looked well within the margin of rounding.

And I would not look too unfavorably on a new fund shedding a few basis points on startup. It has to be the most difficult time to manage an index fund, and it's one reason that I would not have moved any money into the funds for a few months, even if I'd already been at Fidelity invested in the equivalent Fidelity funds paying a few bp in expenses.
I don't think a few basis points are that significant in general, but they are significant in a context where Fidelity is marketing these funds entirely based on saving a few basis points.
I didn't mean that it wasn't significant, only that I wouldn't judge a fund too harshly in the long run for little first-month tracking error. I do actually think it would be significant enough that I would not jump into a new index fund out of a similar index fund in the first few months to save a few bps in expense ratio because the odds of giving them back would be too high.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by Jack FFR1846 » Fri Aug 24, 2018 2:12 pm

I mentioned that I split my US equity position at Fidelity. It is easy and fun (for me, I'm easily amused) to just open up my Fidelity account and directly compare. From yesterday's nav (I think fido updates around 8pm eastern)

FSTVX: $326,813.70
FZROX: $326,874.79

From memory, yesterday, they were switched (FSTVX was higher). I bought 8/9.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by Whakamole » Fri Aug 24, 2018 2:29 pm

I ran the numbers using NAV at the end of day 8/23. For international, I included VFWAX (Vanguard FTSE ex-US) since it may be closer to FZILX in that it includes emerging markets but not small caps. I also included VTIAX (Vanguard Total International) for reasons I'll talk about later.

Code: Select all

	3-Aug	23-Aug	% Change
FZROX	$10.04 	$10.14 	0.996%
FSTVX	$81.89 	$82.69 	0.977%
			
FZILX	$10.03 	$9.81 	-2.193%
FTIPX	$12.25 	$12.01 	-1.959%
VFWAX	$32.76 	$32.09 	-2.045%
VTIAX	$29.45 	$28.84 	-2.071%
For domestic funds, it's noise.

Even for international funds I'd argue it's still noise, since every fund samples and whatever stocks Fidelity chose as representative samples may have done worse in the past three weeks than whatever Vanguard chose. How else to explain the difference between FTIPX and VTIAX? They are supposed to be fundamentally equivalent - developed and emerging markets, large/mid/small caps - yet FTIPX did better. Clearly this isn't skill by Vanguard (otherwise VTIAX would have beaten FTIPX), or skill by Fidelity (otherwise FZILX would have beaten VFWAX.) It's random since the sampling period is so short.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by nisiprius » Sat Aug 25, 2018 11:53 am

Medlabscientist wrote:
Fri Aug 24, 2018 12:49 pm
Not sure if anyone else mentioned this yet...

The zero index funds are not actually index funds that hold the actual stocks. Fidelity came up with a formula that lets them buy some of the stocks to save money, but they don't actually hold the whole market weighted index.

I was listening to some show explain this, but these zero funds may have a tracking error because in order to save money on costs, Fidelity is using a secret formula to skirt around buying all the stocks.
Just like the Vanguard 500 Index Fund originally, which held something like IIRC 275 stocks... according to "a secret formula" devised by Gus Sauter "to skirt around buying all the stocks."
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by nedsaid » Sat Aug 25, 2018 12:03 pm

nisiprius wrote:
Sat Aug 25, 2018 11:53 am
Medlabscientist wrote:
Fri Aug 24, 2018 12:49 pm
Not sure if anyone else mentioned this yet...

The zero index funds are not actually index funds that hold the actual stocks. Fidelity came up with a formula that lets them buy some of the stocks to save money, but they don't actually hold the whole market weighted index.

I was listening to some show explain this, but these zero funds may have a tracking error because in order to save money on costs, Fidelity is using a secret formula to skirt around buying all the stocks.
Just like the Vanguard 500 Index Fund originally, which held something like IIRC 275 stocks... according to "a secret formula" devised by Gus Sauter "to skirt around buying all the stocks."
Are the "index" funds stock picking as well? I could tolerate this with a Total Market fund where a manager has to sample the Micro-Caps but not with an S&P 500 Index. If I buy the S&P 500, I want all the stocks contained theirin, all these stocks are liquid enough to be investable even for a very large fund. Micro-Caps contained within the Wilshire 5000 would have to be sampled as they are all not liquid enough to be investable. In certain circumstances, I can deal with sampling but not with Large Cap Indexes. Seems to be like a truth in advertising thing.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by sc9182 » Sat Aug 25, 2018 6:10 pm

There is a recent update on MoneyGuy show by Brian Preston on these Funds/choices. Brian has good episodes, has one recent episode on this topic:

https://www.moneyguy.com/videos/

(Direct linky for the episode of interest: https://www.youtube.com/watch?v=yn1OOFffBkI )

I think the competition is good and giving great choices to consumers/investors. We are the beneficiaries of this great price competition!

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by ruralavalon » Sun Aug 26, 2018 4:22 pm

jhfenton wrote:
Wed Aug 22, 2018 6:50 pm
1. I'd say the difference between ZERO Total Market and Premium Total Market is within possible rounding error.
2. ZERO International has emerging markets, so it should be compared to FTIPX, as mervinj7 points out. Once you do that, I think you'll see little to no difference.
Or perhaps compare the new Fidelity ZERO International Index Fund (FZILX) to Fidelity Global Ex-U.S Index Fund Premium Class (FSGDX).

Both cover developed and emerging markets, but lack international small-cap stocks.

I feel you probably have to have 6-12 months of track record at a minimum before the comparison is very helpful.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by arcticpineapplecorp. » Sun Aug 26, 2018 4:43 pm

Fidelity's international fund (notice they're not calling it "total international" like Vanguard) beat Vanguard's total international fund since date of inception for the zero funds 8/2/18 (blue is Fido and orange is Vanguard):

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

But what I find more interesting is that Fidelity's "zero total market index fund" has done slightly worse than Vanguard's total stock market index fund:

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

Finally, why didn't Fidelity offer a zero total bond market index fund (to compete with Vanguard's total bond market index fund, U.S. only)? Doesn't Fidelity know about the three fund portfolio?
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by gostars » Sun Aug 26, 2018 10:51 pm

The Zero index funds work by using income from loaning out the stocks to pay the fund expenses. I don't think there's much of a market for loaning bonds.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by Nate79 » Sun Aug 26, 2018 11:47 pm

arcticpineapplecorp. wrote:
Sun Aug 26, 2018 4:43 pm
Fidelity's international fund (notice they're not calling it "total international" like Vanguard) beat Vanguard's total international fund since date of inception for the zero funds 8/2/18 (blue is Fido and orange is Vanguard):

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

But what I find more interesting is that Fidelity's "zero total market index fund" has done slightly worse than Vanguard's total stock market index fund:

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

Finally, why didn't Fidelity offer a zero total bond market index fund (to compete with Vanguard's total bond market index fund, U.S. only)? Doesn't Fidelity know about the three fund portfolio?
Move the total stock market chart by one day later and you see the fidelity fund ahead by 3 dollars. All the difference you were seeing was on the first day.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by arcticpineapplecorp. » Mon Aug 27, 2018 7:44 am

Nate79 wrote:
Sun Aug 26, 2018 11:47 pm
Move the total stock market chart by one day later and you see the fidelity fund ahead by 3 dollars. All the difference you were seeing was on the first day.
I see that. What a difference one day can make!
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by ruralavalon » Mon Aug 27, 2018 8:46 am

arcticpineapplecorp. wrote:
Mon Aug 27, 2018 7:44 am
Nate79 wrote:
Sun Aug 26, 2018 11:47 pm
Move the total stock market chart by one day later and you see the fidelity fund ahead by 3 dollars. All the difference you were seeing was on the first day.
I see that. What a difference one day can make!
That should be a song :wink:
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by arcticpineapplecorp. » Mon Aug 27, 2018 9:22 am

gostars wrote:
Sun Aug 26, 2018 10:51 pm
The Zero index funds work by using income from loaning out the stocks to pay the fund expenses. I don't think there's much of a market for loaning bonds.
thank you. that does make sense and probably explains it.
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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by mervinj7 » Mon Aug 27, 2018 1:57 pm

arcticpineapplecorp. wrote:
Mon Aug 27, 2018 9:22 am
gostars wrote:
Sun Aug 26, 2018 10:51 pm
The Zero index funds work by using income from loaning out the stocks to pay the fund expenses. I don't think there's much of a market for loaning bonds.
thank you. that does make sense and probably explains it.
Actually, the ZERO funds don't use securities lending to offset the fund expenses.
However, a Fidelity spokeswoman threw cold water on the theory on Thursday, telling Citywire the company is not receiving any revenue from the zero-fee funds for securities lending.
It is also worth noting that even without any fees from securities lending, Fidelity has ensured the loss it makes on these funds will be mitigated by the fact the firm does not have to pay any license fees to an index provider, such as S&P 500 or FTSE Russell, as the two funds will track indices constructed in-house.
http://citywireusa.com/professional-buy ... s/a1143805

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by CraigTester » Mon Aug 27, 2018 8:07 pm

I just looked up the vanguard wiki recommendation for international funds at Fidelity

This is what it says:

Fidelity ZERO International Index Fund (FZILX) or Fidelity Total International Index Fund (FTIHX)

https://www.bogleheads.org/wiki/Three-fund_portfolio

I didn’t keep track of all the funds being discussed above, but shouldn’t FTIHX be the “default”?

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by GoldStar » Mon Aug 27, 2018 8:12 pm

CraigTester wrote:
Mon Aug 27, 2018 8:07 pm
I just looked up the vanguard wiki recommendation for international funds at Fidelity

This is what it says:

Fidelity ZERO International Index Fund (FZILX) or Fidelity Total International Index Fund (FTIHX)

https://www.bogleheads.org/wiki/Three-fund_portfolio

I didn’t keep track of all the funds being discussed above, but shouldn’t FTIHX be the “default”?
Why? I was thinking the Zero funds should be the default - zero ER and no history to show they will not have significant tracking error compared to the legacy + ER funds.
Note the title of this thread and claims were found to be incorrect.

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Re: Fidelity Zero ER Funds are underperforming their equivalent premium class index funds

Post by CraigTester » Mon Aug 27, 2018 9:26 pm

GoldStar wrote:
Mon Aug 27, 2018 8:12 pm
CraigTester wrote:
Mon Aug 27, 2018 8:07 pm
I just looked up the vanguard wiki recommendation for international funds at Fidelity

This is what it says:

Fidelity ZERO International Index Fund (FZILX) or Fidelity Total International Index Fund (FTIHX)

https://www.bogleheads.org/wiki/Three-fund_portfolio

I didn’t keep track of all the funds being discussed above, but shouldn’t FTIHX be the “default”?
Why? I was thinking the Zero funds should be the default - zero ER and no history to show they will not have significant tracking error compared to the legacy + ER funds.
I must have asked my question in a confusing way.

My real point is that if you look up the Bogleheads recommended International index fund to be used at Fidelity, it names two (FZILX,FTIHX).

The first, FZILX, is the subject of this thread.

So what we need to critique FZILX's performance is something to compare it against.

Why wouldn't we automatically use the second recommended fund, FTIHX, as the fund with witch we use to to compare the newcomer against?

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