Fidelity Zero funds vs Vanguard performance

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Brucie
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Fidelity Zero funds vs Vanguard performance

Post by Brucie »

Can anyone explain the difference in performance for Fidelity new Zero expense TSMI fund vs Vanguard.

As of Friday 9/18.


FZROX - The new Zero fee TSMI fund- YTD +4.94
FSKAX - The older fund with a .015 expense fee- YTD +5.03
VTSAX- TSMI mutual fund .04 expense- YTD +5.25
VTI- TSMI ETF .03 expense -YTD + 5.32

It seems like a .3 % difference in performance is significant.
The money I have in FZROX is in a Roth with Fidelity, and could easily be transferred to an existing Roth I have with Vanguard.
student
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Re: Fidelity Zero funds vs Vanguard performance

Post by student »

Difference indices and the data range is too short.
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Re: Fidelity Zero funds vs Vanguard performance

Post by ruralavalon »

Brucie wrote: Mon Sep 21, 2020 11:59 am Can anyone explain the difference in performance for Fidelity new Zero expense TSMI fund vs Vanguard.

As of Friday 9/18.


FZROX - The new Zero fee TSMI fund- YTD +4.94
FSKAX - The older fund with a .015 expense fee- YTD +5.03
VTSAX- TSMI mutual fund .04 expense- YTD +5.25
VTI- TSMI ETF .03 expense -YTD + 5.32

It seems like a .3 % difference in performance is significant.
The money I have in FZROX is in a Roth with Fidelity, and could easily be transferred to an existing Roth I have with Vanguard.
My guess is the differences in the indexes used.

Fidelity ZERO Total Market Index Fund (FZROX) ER 0.00%, uses Fidelity U.S. Total Investable Market Index.

Fidelity Total Market Index Fund (FSKAX) ER 0.015%, uses Dow Jones US Total Stock Market Index.

Vanguard Total Stock Market Index Fund (VTSAX) 0.04%, uses CRSP Total Market Index.

Nine months is a very short period for comparison.

VTSAX. FSKAX.
4.12%. 3.80%. 1 year
7.74%. 7.36%. 3 years
7.84%. 7.35%. 5 years

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Last edited by ruralavalon on Mon Sep 21, 2020 12:28 pm, edited 3 times in total.
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Re: Fidelity Zero funds vs Vanguard performance

Post by nisiprius »

Assume that there isn't any, or that the difference is random noise and doesn't matter. It's just not worth fussing about. It's like trying to figure out why you topped off the tank, drove 200 miles, topped it up again, and drove the same route, topped up again, and one time it took 4.94 gallons and the other time it took 5.03.
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Brucie
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Re: Fidelity Zero funds vs Vanguard performance

Post by Brucie »

Thanks for the responses, I learned some things.

The new FZROX fund is not old enough for comparison beyond a year.
I incorrectly assumed that all TSMI funds worked of the same tracking index.
I wonder if Vanguard funds being so huge may have some economies of scale vs the upstart Fidelity Zero and even the Fidelity FSKAX.

The money, is actually my wifes Roth is in the Fidelity fund somewhat randomly, it was funded from a Roth 403B to a Roth IRA.
She also has a much larger Roth amount from direct contribution in VTSAX held at Vanguard.
So a secondary consideration is to simplify and consolidate.

Still wondering if the Fidelity FZROX with zero expense is more of a gimmick, especially compared to the super low fees in the Vanguard funds.
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Re: Fidelity Zero funds vs Vanguard performance

Post by SmileyFace »

Where did you get the numbers?
When I graph FZROX and VTSAX on finance.yahoo.com Fidelity comes out ahead by a hair for YTD this year.
It's really in the noise though.
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Re: Fidelity Zero funds vs Vanguard performance

Post by retiredjg »

Brucie wrote: Mon Sep 21, 2020 4:01 pm Still wondering if the Fidelity FZROX with zero expense is more of a gimmick, especially compared to the super low fees in the Vanguard funds.
I think this depends on what you consider "a gimmick".

In this case, I think creating a new index fund that is very similar to something else you sell but with a 0% ER is gimmicky - a loss leader, something they are willing to lose a little money on in order to get some profits elsewhere.

This does not mean it is not a legitimate index fund or that it won't do what index funds are supposed to do. It's probably just fine and if it behaves in any way other than just fine, Fidelity will look incredibly inept....which I don't think they will allow to happen.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

How do you know it is a loss leader? Not all costs are accounted for in ER.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Fidelity Zero funds vs Vanguard performance

Post by retiredjg »

Northern Flicker wrote: Mon Sep 21, 2020 4:49 pm How do you know it is a loss leader? Not all costs are accounted for in ER.
I don't know. That's why I said "I think". :D

It cannot be not operating itself with no expenses. That money has to come from somewhere.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Raraculus »

retiredjg wrote: Mon Sep 21, 2020 5:08 pmI don't know. That's why I said "I think". :D

It cannot be not operating itself with no expenses. That money has to come from somewhere.
You may be right.

Quickly perusing the cash holdings for FZROX and VTSAX shows a large difference. FZROX has .20% in cash holdings versus .03% for VTSAX. That may be where Fidelity gets some compensation for running a zero-fee fund?
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Re: Fidelity Zero funds vs Vanguard performance

Post by Kevin M »

First, let's look at a longer period. FZROX inception was 8/2/2018, so I'll show two years of growth for the three funds. This is a like a Morningstar "growth of $10K" chart, but showing growth of 1, so for example, a value of 1.20 indicates 20% growth.

Image

Can't really see much difference on a chart like this, as we'd expect.

Now let's look at a telltale chart, which divides the growth of one fund by the growth of another fund, and gives us a view into the relative performance of the two funds. I'll show three such ratios in this chart:

Image

(Something weird happened on 7/6/2020, with both FZROX and FSKAX having one-day jumps relative to VTSAX, but returning to VTSAX growth on 7/7/2020, so let's just ignore that.)

With a telltale chart, when the value is greater than 1, the fund in the numerator is ahead of the fund in the denominator. Also, when the line has a positive slope, the fund in the numerator generally is doing better than the fund in the denominator, and vice versa.

Focusing just on FZROX/VTSAX, the yellow line, we see that FZROX was doing better than VTSAX for much of the 2-year period, with some relative outperformance in the second half of 2019. We also see that FZROX was ahead of or tied with VTSAX for the 2-year period as recently as 9/13/2020 (can't see the exact date in the chart, but I see it in the underlying data). We also see relative underperformance (negative slope) for FZROX vs. VTSAX for much of 2020, which is consistent with the slightly negative relative YTD performance noted in the OP.

So the start and end dates make a difference, as is often the case.

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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

retiredjg wrote: Mon Sep 21, 2020 5:08 pm
Northern Flicker wrote: Mon Sep 21, 2020 4:49 pm How do you know it is a loss leader? Not all costs are accounted for in ER.
I don't know. That's why I said "I think". :D

It cannot be not operating itself with no expenses. That money has to come from somewhere.
ER is not the only way money can flow from the fund to fidelity.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

Raraculus wrote: Mon Sep 21, 2020 5:29 pm
retiredjg wrote: Mon Sep 21, 2020 5:08 pmI don't know. That's why I said "I think". :D

It cannot be not operating itself with no expenses. That money has to come from somewhere.
You may be right.

Quickly perusing the cash holdings for FZROX and VTSAX shows a large difference. FZROX has .20% in cash holdings versus .03% for VTSAX. That may be where Fidelity gets some compensation for running a zero-fee fund?
Mutual funds also get services, data etc. that they otherwise would charge to the fund and account for in ER packaged by brokers with transactions, hiding costs in the transaction fees where they are not accounted for in ER.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Fidelity Zero funds vs Vanguard performance

Post by ruralavalon »

Brucie wrote: Mon Sep 21, 2020 4:01 pm . . . . .
Still wondering if the Fidelity FZROX with zero expense is more of a gimmick, especially compared to the super low fees in the Vanguard funds.
I have always felt that the Fidelity ZERO funds are a marketing gimmick, and that tiny differences in expense ratios are nearly meaningless. You cannot buy the ZERO funds in a 401k, 403b, or 457b plan.
Fidelity wrote:Shares of the fund are available only to individual retail investors who purchase their shares through a Fidelity® brokerage account, including retail non-retirement accounts, retail retirement accounts (traditional, Roth and SEP Individual Retirement Accounts (IRAs)), health savings accounts (HSAs), Fidelity BrokerageLink® accounts, and stock plan services accounts.
I think they are probably good funds to use in tax-advantaged accounts.
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Re: Fidelity Zero funds vs Vanguard performance

Post by retiredjg »

Northern Flicker wrote: Wed Sep 23, 2020 4:37 pm
retiredjg wrote: Mon Sep 21, 2020 5:08 pm
Northern Flicker wrote: Mon Sep 21, 2020 4:49 pm How do you know it is a loss leader? Not all costs are accounted for in ER.
I don't know. That's why I said "I think". :D

It cannot be not operating itself with no expenses. That money has to come from somewhere.
ER is not the only way money can flow from the fund to fidelity.
Ok. Not sure what you have in mind, but let's assume that these funds are not loss leaders and do pay for themselves through some other means.

Does that change the probability that they were designed to bring in customers from whom profits can be made in other investments? Does it change the gimmicky-ness?

Fidelity is doing this to attract customers. Some would consider it a marketing tool and some would consider it a gimmick (which was what the original poster asked). It is all in the mind of the beholder and how one defines gimmick.

Either way, they are functional index funds. I would not buy them in a taxable account though.
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Re: Fidelity Zero funds vs Vanguard performance

Post by nix4me »

Some of us LOVE paying 0 ER for FZROX!

Portfolio 1 $10,000 $14,308 23.98% 21.04% 30.80% 9.38% -20.87% 1.06 1.64 1.00
Portfolio 2 $10,000 $14,317 24.03% 21.12% 31.15% 9.17% -21.08% 1.06 1.63 1.00

Portfolio Visualizer #2 is FZROX
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Re: Fidelity Zero funds vs Vanguard performance

Post by MrJedi »

This is just my speculation, but I believe Zero funds are mostly a marketing play to attract customers with the plan to get them or their beneficiaries to invest in some more expensive active funds or advisory services. I think the fact that they can only be bought through Fidelity directly hints toward that too. Fidelity loves to advertise those advisory services and active funds too. They have great index funds but they seem to be purposefully buried. You will not easily find literature on their site about indexing or their index products unless you are specifically searching for it. I believe it's all part of a marketing strategy. I'm a Fidelity user and all, but I can easily see a non-Bogleheads investor getting caught up in all of the extra fluff that Fidelity pushes.

I don't have a problem with zero funds myself other than mobility issues in a taxable account. They seem to index well within the short time we've had them at least.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Eric »

Kevin M wrote: Mon Sep 21, 2020 5:41 pmNow let's look at a telltale chart, which divides the growth of one fund by the growth of another fund, and gives us a view into the relative performance of the two funds.
Very interesting and helpful chart, thanks. What website or software did you use to generate it?

I would be curious to see a similar comparison for the equivalent international funds (Vanguard Total International [VTIAX], Fidelity Total International [FTIHX], and Fidelity Zero International [FZILX]).
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Re: Fidelity Zero funds vs Vanguard performance

Post by 123 »

There is a potential problem with Fidelity Zero funds if you use them in a taxable account. It is unlikely that you will ever be able to transfer them to another brokerage since there is no fee that provides a servicing fee or other revenue to another broker. So you are locked in with Fidelity since you would have a tax event if you wanted to move your account and they had to be sold. Not an issue in retirement accounts.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

The regular Fidelity index funds have low enough fees that I would prefer the added transparency of tracking a 3rd party index. I've also been unable to determine if Fidelity owns a stake in the brokers used for Zero fund transactions.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Ferdinand2014 »

Brucie wrote: Mon Sep 21, 2020 4:01 pm Thanks for the responses, I learned some things.

The new FZROX fund is not old enough for comparison beyond a year.
I incorrectly assumed that all TSMI funds worked of the same tracking index.
I wonder if Vanguard funds being so huge may have some economies of scale vs the upstart Fidelity Zero and even the Fidelity FSKAX.

The money, is actually my wifes Roth is in the Fidelity fund somewhat randomly, it was funded from a Roth 403B to a Roth IRA.
She also has a much larger Roth amount from direct contribution in VTSAX held at Vanguard.
So a secondary consideration is to simplify and consolidate.

Still wondering if the Fidelity FZROX with zero expense is more of a gimmick, especially compared to the super low fees in the Vanguard funds.
Zero fees is not a gimmick. It’s a great fund. Don’t overthink this.
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Re: Fidelity Zero funds vs Vanguard performance

Post by nix4me »

There are many zero fee ETFs now from several providers. Vanguard is lagging the fee war.
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Re: Fidelity Zero funds vs Vanguard performance

Post by alex_686 »

Northern Flicker wrote: Mon Sep 21, 2020 4:49 pm How do you know it is a loss leader? Not all costs are accounted for in ER.
All operational costs must be accounted in the ER.
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Re: Fidelity Zero funds vs Vanguard performance

Post by alex_686 »

Northern Flicker wrote: Wed Sep 23, 2020 4:41 pm Mutual funds also get services, data etc. that they otherwise would charge to the fund and account for in ER packaged by brokers with transactions, hiding costs in the transaction fees where they are not accounted for in ER.
If you are referring to “soft dollars” then this can’t be answer. Portfolio Managers are required to do “best execution”, so they can’t seek out a broker with high sift dollars. Next, soft dollars can only be used in limited ways, primarily to help the portfolio manager make investment decisions. It can’t be used to pay the portfolio manager or for operations.

Having worked in this space, calculating fund expenses ratios, I have no idea how they are running it. Maybe via Sec Lending but that doesn’t sound like a good business model for a couple of reasons.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Kevin M »

Eric wrote: Wed Sep 23, 2020 5:36 pm
Kevin M wrote: Mon Sep 21, 2020 5:41 pmNow let's look at a telltale chart, which divides the growth of one fund by the growth of another fund, and gives us a view into the relative performance of the two funds.
Very interesting and helpful chart, thanks. What website or software did you use to generate it?
The date comes from Morningstar retrieved with a Google sheets script that I wrote. Charts are straight Google Sheets.
Eric wrote: Wed Sep 23, 2020 5:36 pm I would be curious to see a similar comparison for the equivalent international funds (Vanguard Total International [VTIAX], Fidelity Total International [FTIHX], and Fidelity Zero International [FZILX]).
Sure.

Growth:

Image

Telltale:

Image

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Re: Fidelity Zero funds vs Vanguard performance

Post by MrJedi »

Yes securities lending is explicitly stated as one of the principal investment strategies in the zero fund prospectuses.
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Re: Fidelity Zero funds vs Vanguard performance

Post by alex_686 »

MrJedi wrote: Wed Sep 23, 2020 8:12 pm Yes securities lending is explicitly stated as one of the principal investment strategies in the zero fund prospectuses.
I will believe it. The issue I have is that Sec Lending is not a stable or reliable source of income. It is not a good match to pay the daily bills - unless they have got angle that I have not thought off.
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Re: Fidelity Zero funds vs Vanguard performance

Post by JoMoney »

It's not technically a "zero" fund, but Fidelity's S&P 500 Index fund ( FXAIX ER <0.02%) has done a great job at tracking it's index, at a ER that's lower than Vanguard's (VFIAX ER 0.04%)
Image

The net return on Vanguard's fund is much tighter to the index than it's ER expenses would imply, so Fidelity fund's lower ER advantage is negligible , but it is nice to see an 'apples-to-applies' comparison of funds tracking the same index.

One of the reasons I like S&P 500 index funds over some of the other broad market indices, is how ubiquitous it is, easy to get the data to compare it to its index and similar funds tracking the exact same index.
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Re: Fidelity Zero funds vs Vanguard performance

Post by greg24 »

There is little differentiation on costs for index funds nowadays.

I know young people entering the world, and investing should be on their short-term horizons.

Given how difficult it is to work with Vanguard, I think I would direct them to Fidelity and their zero index funds.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Eric »

Kevin M wrote: Wed Sep 23, 2020 8:12 pmTelltale:

Image
Thanks! I suppose that VTIAX and FTIHX are the most direct comparison (since FZILX doesn't reach as low in market capitalization), so it's interesting to see that Vanguard still leads very slightly there, though over a short time period. I've noticed before that Vanguard seems especially skilled (or possibly especially lucky ;-)) in making up its expense ratio in its international index funds.

Eric
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Re: Fidelity Zero funds vs Vanguard performance

Post by ruralavalon »

nix4me wrote: Wed Sep 23, 2020 7:43 pm There are many zero fee ETFs now from several providers. Vanguard is lagging the fee war.
Who are the providers of "zero fee ETFs?" What are the "zero fee ETFs"?

The are many brokerages (including Vanguard) with zero commissions on ETFs trades, but that's not what we are discussing.
Last edited by ruralavalon on Thu Sep 24, 2020 2:43 pm, edited 1 time in total.
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Re: Fidelity Zero funds vs Vanguard performance

Post by jason2459 »

There's a couple with waivers. Only ETF with 0 ER and no waivers are from BNY Mellon.

https://im.bnymellon.com/us/en/intermed ... p#our_etfs
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

alex_686 wrote: Wed Sep 23, 2020 7:46 pm
Northern Flicker wrote: Mon Sep 21, 2020 4:49 pm How do you know it is a loss leader? Not all costs are accounted for in ER.
All operational costs must be accounted in the ER.
Not so. Mutual fund companies receive administrative service, data, analysis etc. from brokers packaged with transactions. These satisfy administrative needs that then do not need to be met directly, hiding some of the administrative costs outside the scrutiny of ER. The products and services do not even need to be used by the fund incurring the transaction. These are often called soft-dollar arrangement with brokers, and they are designed to undermine the transparency of ER accounting, and in my opinion, should be illegal, but they are allowed under law. If the brokers involved turned out to be subsidiaries of Fidelity, transparency would be undermined further.

I don't think the zero funds are bad products, but I'm skeptical that they are cheaper than the already low non-zero cost analogous index funds Fidelity also offers. They are a little less transparent.

I use both Vanguard and Fidelity products. In all but one of the cases, the product is superior to the competitor's analogous product for my needs.
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Re: Fidelity Zero funds vs Vanguard performance

Post by alex_686 »

So I am taking your post out of order. And this is a bit of a repost since you seemed to miss some of my earlier points on soft dollars. A quick note on soft dollars - they are not dollars. They are more akin of frequent flyer miles that are used to get upgraded service.
Northern Flicker wrote: Thu Sep 24, 2020 11:15 pmThese are often called soft-dollar arrangement with brokers, and they are designed to undermine the transparency of ER accounting, and in my opinion, should be illegal, but they are allowed under law. If the brokers involved turned out to be subsidiaries of Fidelity, transparency would be undermined further.
Soft dollars are the most common form of client brokerage and have had their scandals. As with all scandals the result was a thicket of regulations. I am confident that Fidelity has a half dozen people on the issue. Once again, the portfolio manager can't select a brokerage based on soft dollars, only best execution.
Northern Flicker wrote: Thu Sep 24, 2020 11:15 pmThe products and services do not even need to be used by the fund incurring the transaction.
This is false. Soft dollars - and all brokerage - is owned by the client. That is, the specific mutual fund. (If a client owns multiple funds, like a pension fund, it can take the soft dollars that it owns and direct it to another fund because they own both funds.) It is not owned by the investment manager (i.e., the portfolio manager) nor the fund company (operations). Note that there are 3 companies here (fund, investment manager, fund company - this will be important later. Where there are shared services costs must be allocated in a fair, rational, consistent way. There is some wiggle room here but not much.
Northern Flicker wrote: Thu Sep 24, 2020 11:15 pmMutual fund companies receive administrative service, data, analysis etc. from brokers packaged with transactions. These satisfy administrative needs that then do not need to be met directly, hiding some of the administrative costs outside the scrutiny of ER.
Soft dollars can only be used in assistance of portfolio manager. i.e., what the investment manager does. It can't be used for administration. i.e., what the fund company does. Their are some grey areas. Soft dollars might be used to buy a Bloomberg data feed to assist the portfolio manager in getting quotes, and operations could then use that feed to end of day pricing. This was a grey area the last time I had to deal with this. But this only gets you so far.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

You can draw the analogy of soft dollars with frequent flyer miles all you want, but that does not change the fact that mutual fund companies receive benefits used in fund administration packaged with brokerage services, and that part of fund administration cost is not accounted for in ER.

The use of soft dollar arrangements with brokers has increased over the years as ERs have decreased, and that is not a coincidence.
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Re: Fidelity Zero funds vs Vanguard performance

Post by grok87 »

fzrox (fido fund) has 2450 stocks whereas vtsax (vanguard fund) has 3500 stocks.
as others have said, they track different indices. but in general i would think the more stocks in a total market index the better, as long as everything is cap weighted.

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Re: Fidelity Zero funds vs Vanguard performance

Post by alex_686 »

grok87 wrote: Fri Sep 25, 2020 3:21 pm fzrox (fido fund) has 2450 stocks whereas vtsax (vanguard fund) has 3500 stocks.
as others have said, they track different indices. but in general i would think the more stocks in a total market index the better, as long as everything is cap weighted.
eh.

I took a look at the index methodology yesterday. It is not quite as sharp as S&P or CRSP. Fewer adjustments to reflect changes in the market, specifically around the corporate actions and buybacks. The indexes also don't try for full replication. So there are 2 strikes against. In theory. In practice it is pretty small cheese.

You are going to see differences. However, I would be hard press to attribute the differences to index construction verse chance.
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Re: Fidelity Zero funds vs Vanguard performance

Post by grok87 »

alex_686 wrote: Fri Sep 25, 2020 3:28 pm
grok87 wrote: Fri Sep 25, 2020 3:21 pm fzrox (fido fund) has 2450 stocks whereas vtsax (vanguard fund) has 3500 stocks.
as others have said, they track different indices. but in general i would think the more stocks in a total market index the better, as long as everything is cap weighted.
eh.

I took a look at the index methodology yesterday. It is not quite as sharp as S&P or CRSP. Fewer adjustments to reflect changes in the market, specifically around the corporate actions and buybacks. The indexes also don't try for full replication. So there are 2 strikes against. In theory. In practice it is pretty small cheese.

You are going to see differences. However, I would be hard press to attribute the differences to index construction verse chance.
thanks for digging into the index methodology. i guess we'll have a clearer view in 10 years when we have a longer track record.
RIP Mr. Bogle.
alex_686
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Re: Fidelity Zero funds vs Vanguard performance

Post by alex_686 »

grok87 wrote: Fri Sep 25, 2020 3:38 pm thanks for digging into the index methodology. i guess we'll have a clearer view in 10 years when we have a longer track record.
I don't think so. One would have to see a consistent difference in the same direction to be statistically significant. And both indexes are being tweaked consistently. My guess is that after 10 years all we are going to see is statistical noise and luck.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Northern Flicker
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

Here you can see the total return of FZROX, the index that it tracks, VTSAX, and FSKAX:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

This is historical performance going back to 1 month after fund launch. It appears that Fidelity is doing enough securities lending to cover the fund costs. It would be interesting to compare the volume of securities lending activity for these funds to see how much securities lending risk each needs to take to cover costs and eliminate tracking error, which would be the true measure of which fund is cheapest.

Note that looking back another month to the launch of FZROX makes FZROX look worse due to a larger cash position than normal as initial cash was deployed. This shows up as tracking error relative to the (Fidelity) index being tracked:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Last edited by Northern Flicker on Thu Oct 01, 2020 12:24 pm, edited 1 time in total.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
dogagility
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Re: Fidelity Zero funds vs Vanguard performance

Post by dogagility »

nix4me wrote: Wed Sep 23, 2020 5:25 pm Some of us LOVE paying 0 ER for FZROX!
Raises hand. Plus I just like saying the ticker out loud. :D
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
Northern Flicker
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

Answering the OP's question, each of the funds are tracking their indices. Differences in performance are thus due to differences in total return of the indices tracked by each fund.

The absence of tracking error in historical returns of a total market index fund means that the fund is doing enough securities lending to cover transaction and administrative costs. The true cost of an index fund is not the ER but the combination of securities lending risk born by the fund and any tracking error. Index funds are still the most transparent equity funds around. The Fidelity zero funds are a little bit less transparent than competing index funds from Fidelity and others because Fidelity controls and administers the index.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
grok87
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Re: Fidelity Zero funds vs Vanguard performance

Post by grok87 »

Northern Flicker wrote: Thu Oct 01, 2020 12:04 am Here you can see the total return of FZROX, the index that it tracks, VTSAX, and FSKAX:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

This is historical performance going back to 1 month after fund launch. It appears that Fidelity is doing enough securities lending to cover the fund costs. It would be interesting to compare the volume of securities lending activity for these funds to see how much securities lending risk each needs to take to cover costs and eliminate tracking error, which would be the true measure of which fund is cheapest.

Note that looking back another month to the launch of FZROX makes FZROX look worse due to a larger cash position than normal as initial cash was deployed. This shows up as tracking error relative to the (Fidelity) index being tracked:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
thanks for mentioning the securities lending.
of course that was one of the things that brought AIG down during the Global Financial Crisis
https://webcache.googleusercontent.com/ ... irefox-b-1
wrote: An endnote in Geithner’s tome explains that securities lending was one of “AIG’s major liquidity needs” at the time of its rescue. As I describe in a recent working paper, the company got itself into hot water by lending securities from its life insurance companies’ portfolios. AIG took the cash collateral it received for these short-term loans and—in a departure from insurance industry practice—invested much of it in longer term, illiquid residential mortgage-backed securities.

The securities lending program grew from about $10 billion at the end of 2001 to over $80 billion by the end of 2007. When borrowers stopped renewing the loans, returned their securities, and asking for their cash back, AIG was in a bind—the borrowers’ cash was tied up in reinvestments.

To meet borrowers’ demands, AIG lent more securities and used the cash collateral from new borrowers to return to existing borrowers. This solution only aggravated the problem. When CEO Robert Willumstad took the reins of AIG in June 2008, the cash drain from securities lending worried him more than AIG Financial Products’ liquidity needs.

Losses from the securities lending program threatened the viability of a number of AIG’s regulated life insurance subsidiaries. To save them from falling below minimum capital requirements, AIG pumped billions of dollars into these units.

Government rescue money was critical to this recapitalization effort. Taxpayer funds were also critical in meeting securities borrowers’ demands for cash. Securities lending counterparties received $43.8 billion in the last quarter of 2008, comparable to $49.6 billion in collateral postings and payments to AIG’s derivatives counterparties.

As consequential as it was to AIG in a time of crisis, nobody likes to tell the securities lending part of the story. First, it doesn’t feed as nicely into the vilification of derivatives that laced crisis narratives and fueled calls for an intense derivatives regulatory regime. Second, the fact that heavily regulated insurance companies got into trouble does not support the call for greater reliance on government regulators. Finally, the rescue of a deeply troubled company is less defensible than the rescue of a healthy insurance company with a troubled derivatives subsidiary.\
cheers,
grok
RIP Mr. Bogle.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

Securities lending actually violates a literal interpretation of two articles of the Investment Company Act of 1940. It nonetheless is allowed based on a series of past letters by the SEC to various institutional investors establishing a precedent for how that law will be administered with respect to securities lending.

https://www.sec.gov/divisions/investmen ... panies.htm
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fwellimort
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Re: Fidelity Zero funds vs Vanguard performance

Post by fwellimort »

Guys...

Fidelity is a credible company.
It's been Vanguard's competitor for ages and routinely gets voted as one of if not the best overall firm for US investors.

I know this forum has a 'Vanguard' vs 'everyone else' witch hunt mentality but my experience has been that Fidelity has provided better service for the clients (compared to the non-existent service available in Vanguard [along with the constant e-mail spam]).
If you are too paranoid to trust Fidelity's index funds (in which Fidelity already has a long proven track record), then just go buy the Vanguard or iShares ETFs with fractional shares.

There's already been plenty of posts of Fidelity Zero vs Vanguard equivalent mutual funds and it came out to noise. Depending on the months, the Fidelity Zero funds were ahead while on other months, Vanguard funds were ahead.

Vanguard's Total US Market Fund has minutely more concentration on small caps while Fidelity's Zero Total Stock Market has minutely more concentration on large caps.
Long term investing, it's noise. If a 0.2% CAVG or whatever in your lifetime makes or breaks your retirement, then you probably have other things to worry about.

Having stated that, I don't necessarily recommend Fidelity Zero funds on taxable (due to the inability to move funds). However, in a tax advantage account, I don't see why not Fidelity Zero funds if you already have an account with Fidelity.

Anyways, viewtopic.php?f=10&t=300940&hilit=fidelity+zero
On Jan 13, 2020:
Image
As you can see, depending on the timeline/month, the indices are all similar enough that results can vary.
Just understand these total market indices are all similar enough that you aren't going to lose out much long term and that the fees at this point are so low that returns across the board will look similar.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

Nobody is saying otherwise, although some people may have negative opinions about a company that claims that a mutual fund with nonzero expenses has zero cost.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Iridium »

Folks need to keep in mind the scale of the loss we are talking about with this loss leader. The fund has $6B under management. If it charged 1.5 basis points, like its sister fund, Fidelity would collect all of $900K. It is difficult to overstate what an insignificant amount of money this is to Fidelity. Its 50,000 employees drink more than that in coffee. Heck, even the fees rolling in on FSKAX, <$10 million, is roughly a rounding error to the multi-billion dollar operation that is Fidelity. As best I can tell, Fidelity's entire indexing operation is a gimmick. If the entire division turned a big enough profit to pay the electric bills of their 140 branches, I would be shocked. If I was a betting man, I would actually put my money on Fidelity's entire indexing division losing money, even excluding the zero funds and all the customer support calls it generates over on the brokerage side. Nobody finds it odd that Fidelity has been able to undercut Vanguard on fees, when their funds don't have the same economies of scale, Vanguard is notoriously stingy, and they can't exploit the ETF as a share class trick?

Fidelity appears to have realized that there is no money in index funds a while ago. So where does the money come from? Certainly their legacy active management business brings in good money. However, I think their future is illustrated well by reading Schwab's annual reports (unlike Fidelity, they are publicly traded). Last I saw (before COVID), they made more from their money markets and net interest on bank deposits than the rest of the company combined (including ETF/MF fees, trading fees, advisory fees, etc.). A net interest margin of 1% was possible before, and the average investor keeps a shockingly large amount of their portfolio in cash. So, from Fidelity's perspective it makes tons of sense to give away 1.5 basis points on 90% of the portfolio, to collect 100+ basis points on 10% of the portfolio left in cash. At least at Schwab, their entire brokerage and ETF/MF business combined aren't so much a core activity, so much as the branded cookies that banks give away to encourage you to stop by and make a deposit.

Edit: I am excluding Fidelity's Smart Beta funds from the above statements about their indexing operation. While they are technically index funds, they charge fees that are far higher.
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Re: Fidelity Zero funds vs Vanguard performance

Post by Northern Flicker »

I'm still waiting to see evidence that Fidelity loses money on these funds. The idea that they are a loss leader is speculation.
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Ferdinand2014
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Re: Fidelity Zero funds vs Vanguard performance

Post by Ferdinand2014 »

Iridium wrote: Mon Oct 05, 2020 2:12 am Folks need to keep in mind the scale of the loss we are talking about with this loss leader. The fund has $6B under management. If it charged 1.5 basis points, like its sister fund, Fidelity would collect all of $900K. It is difficult to overstate what an insignificant amount of money this is to Fidelity. Its 50,000 employees drink more than that in coffee. Heck, even the fees rolling in on FSKAX, <$10 million, is roughly a rounding error to the multi-billion dollar operation that is Fidelity. As best I can tell, Fidelity's entire indexing operation is a gimmick. If the entire division turned a big enough profit to pay the electric bills of their 140 branches, I would be shocked. If I was a betting man, I would actually put my money on Fidelity's entire indexing division losing money, even excluding the zero funds and all the customer support calls it generates over on the brokerage side. Nobody finds it odd that Fidelity has been able to undercut Vanguard on fees, when their funds don't have the same economies of scale, Vanguard is notoriously stingy, and they can't exploit the ETF as a share class trick?

Fidelity appears to have realized that there is no money in index funds a while ago. So where does the money come from? Certainly their legacy active management business brings in good money. However, I think their future is illustrated well by reading Schwab's annual reports (unlike Fidelity, they are publicly traded). Last I saw (before COVID), they made more from their money markets and net interest on bank deposits than the rest of the company combined (including ETF/MF fees, trading fees, advisory fees, etc.). A net interest margin of 1% was possible before, and the average investor keeps a shockingly large amount of their portfolio in cash. So, from Fidelity's perspective it makes tons of sense to give away 1.5 basis points on 90% of the portfolio, to collect 100+ basis points on 10% of the portfolio left in cash. At least at Schwab, their entire brokerage and ETF/MF business combined aren't so much a core activity, so much as the branded cookies that banks give away to encourage you to stop by and make a deposit.

Edit: I am excluding Fidelity's Smart Beta funds from the above statements about their indexing operation. While they are technically index funds, they charge fees that are far higher.

FSKAX brings in 49,481,000,000 x 0.00015 = $7,422,150. FXAIX brings in 252,105,000,000 x 0.00015 = $37,815,700. I understand this is a relatively small amount for Fidelity. They have 47 index funds with about 500 billion in AUM with fees ranging from 0.00 to 0.12 . The average is about 0.005 x 500 billion is $250,000,000 give or take in fees. I understand that represents a minority of the profits for Fidelity, but I hardly call it a gimmick. They offer world beating customer service 24/7, all-in-one options for all of your investment needs and offer super low cost funds. The FDIC accounts do not charge a fee and they cycle with banks to get up too 1,250,000 in FDIC cash. I have been with Fidelity for 22 years and have never had a bad experience. It is probably the only company I have ever dealt with that is so consistently excellent in what they do. Competition is good. I can't imagine ever using another financial service company.
Last edited by Ferdinand2014 on Mon Oct 05, 2020 3:10 pm, edited 1 time in total.
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Nate79
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Re: Fidelity Zero funds vs Vanguard performance

Post by Nate79 »

Ferdinand2014 wrote: Mon Oct 05, 2020 2:44 pm
Iridium wrote: Mon Oct 05, 2020 2:12 am Folks need to keep in mind the scale of the loss we are talking about with this loss leader. The fund has $6B under management. If it charged 1.5 basis points, like its sister fund, Fidelity would collect all of $900K. It is difficult to overstate what an insignificant amount of money this is to Fidelity. Its 50,000 employees drink more than that in coffee. Heck, even the fees rolling in on FSKAX, <$10 million, is roughly a rounding error to the multi-billion dollar operation that is Fidelity. As best I can tell, Fidelity's entire indexing operation is a gimmick. If the entire division turned a big enough profit to pay the electric bills of their 140 branches, I would be shocked. If I was a betting man, I would actually put my money on Fidelity's entire indexing division losing money, even excluding the zero funds and all the customer support calls it generates over on the brokerage side. Nobody finds it odd that Fidelity has been able to undercut Vanguard on fees, when their funds don't have the same economies of scale, Vanguard is notoriously stingy, and they can't exploit the ETF as a share class trick?

Fidelity appears to have realized that there is no money in index funds a while ago. So where does the money come from? Certainly their legacy active management business brings in good money. However, I think their future is illustrated well by reading Schwab's annual reports (unlike Fidelity, they are publicly traded). Last I saw (before COVID), they made more from their money markets and net interest on bank deposits than the rest of the company combined (including ETF/MF fees, trading fees, advisory fees, etc.). A net interest margin of 1% was possible before, and the average investor keeps a shockingly large amount of their portfolio in cash. So, from Fidelity's perspective it makes tons of sense to give away 1.5 basis points on 90% of the portfolio, to collect 100+ basis points on 10% of the portfolio left in cash. At least at Schwab, their entire brokerage and ETF/MF business combined aren't so much a core activity, so much as the branded cookies that banks give away to encourage you to stop by and make a deposit.

Edit: I am excluding Fidelity's Smart Beta funds from the above statements about their indexing operation. While they are technically index funds, they charge fees that are far higher.
FSKAX brings in 49,481,000,000 x 0.0015 = $74,221,500. FXAIX brings in 252,105,000,000 x 0.0015 = $378,157,500. I understand this is a relatively small amount for Fidelity, but it is way more than $10,000,000 you state. They have 47 index funds with about 500 billion in AUM with fees ranging from 0.00 to 0.12 . The average is about 0.005 x 500 billion is $2.5 billion give or take in fees. I understand that represents a minority of the profits for Fidelity, but I hardly call it a gimmick. They offer world beating customer service 24/7, all-in-one options for all of your investment needs and offer super low cost funds. The FDIC accounts do not charge a fee and they cycle with banks to get up too 1,250,000 in FDIC cash. I have been with Fidelity for 22 years and have never had a bad experience. It is probably the only company I have ever dealt with that is so consistently excellent in what they do. Competition is good. I can't imagine ever using another financial service company.
Your expense ratios are off by a factor of 10. 0.015% = 0.00015
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