Why is the Fidelity Zero Extended Index Fund so different?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
nisiprius
Advisory Board
Posts: 43777
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Why is the Fidelity Zero Extended Index Fund so different?

Post by nisiprius »

Just curiosity, but I noticed it when looking at the Fidelity Zero funds the other day.

Large-cap blend index funds perform almost identically, regardless of the exact index details:

FNILX, Fidelity Zero Large-Cap Index Fund, tracks a Fidelity index that includes the 500 largest-cap companies
VOO, tracks the S&P 500 index of "leading companies in leading industries"
VLCAX, Vanguard Large-Cap Index Fund, tracks the stocks representing the "top 85% of market capitalization" = 582 stocks
IWB, tracks the Russell 1000 index of the 1000 largest-cap companies.

Source

Image

But if we look at "extended market index funds," there is a really surprising difference:

FZIPX, Fidelity Zero Extended Index Funds (tracks the Fidelity U.S. Extended Investable Market Index, which is the total market exclusive of the 500 stocks in the Fidelity Large-Cap Index)
FSMAX, Fidelity Extended Market Index Fund (tracks the Dow Jones U.S. Completion Total Stock Market Index)
VEXMX, Vanguard Extended Market Index Fund (tracks the Standard & Poor’s Completion Index)
USMIX, USAA Extended Market Index Fund (tracks the Wilshire 4500 Completion Index)
PEXMX, T. Rowe Price Extended Market Index Fund (tracks the S&P Completion Index)


Source

Image

As you see, FZIPX differs sharply from the other four funds. The other four performed virtually identically, including the regular Fidelity Extended Market Index Fund. FZIPX differed sharply even from the other Fidelity "extended market index fund." I think that's fairly surprising and that Fidelity shouldn't have used such similar fund names for such different funds.

In a sense there is no mystery, because (I think, haven't double-checked) all the "completion indexes" are the total market with the stocks of the S&P 500 excluded, while FZIPX is tracking the total market with the 500 largest stocks excluded. But, as we saw in our first chart, the S&P 500, and the 500 largest stocks as tracked by FZILX, performed almost identically

So my question is: if the performance of the S&P 500 is almost the same as that of the 500 largest stocks, why is the "the total market except for the S&P 500" so different from "the total market except for the 500 largest stocks?"

I have no answer, but I did go to the trouble of listing what those stocks are. This was done by extracting data from listings of the holdings of the Vanguard Total Stock Market Index ETF and the Vanguard 500 Index ETF so may not be precisely identical to holdings of the Fidelity funds... and the Fidelity funds use sampling rather than replication... but anyway:


Not in S&P 500, but in top 500 by capitalization; thus, presumably, in the other extended market index funds but not FZIPX.

(ACGL) Arch Capital Group Ltd.
(ALLY) Ally Financial Inc.
(ALNY) Alnylam Pharmaceuticals Inc.
(AVTR) Avantor Inc.
(BMRN) BioMarin Pharmaceutical Inc.(BMRN) BioMarin Pharmaceutical Inc.
(BURL) Burlington Stores Inc.
(BX) Blackstone Group LP Class A
(CCK) Crown Holdings Inc.
(CGNX) Cognex Corp.
(COIN) Coinbase Global Inc. Class A
(COUP) Coupa Software Inc.
(CRL) Charles River Laboratories International Inc.
(CRWD) Crowdstrike Holdings Inc. Class A
(CSGP) CoStar Group Inc.
(CVNA) Carvana Co. Class A(CVNA) Carvana Co. Class A
(DDOG) Datadog Inc. Class A
(DELL) Dell Technologies Inc.
(DKNG) DraftKings Inc. Class A
(DOCU) DocuSign Inc. Class A
(ELAN) Elanco Animal Health Inc.
(ENTG) Entegris Inc.(ENTG) Entegris Inc.
(EPAM) EPAM Systems Inc.
(EQH) Equitable Holdings Inc.(EQH) Equitable Holdings Inc.
(EXAS) Exact Sciences Corp.
(FICO) Fair Isaac Corp.
(GDDY) GoDaddy Inc. Class A
(GH) Guardant Health Inc.(GH) Guardant Health Inc.
(HUBS) HubSpot Inc.
(HZNP) Horizon Therapeutics plc
(IAC) IAC/InterActiveCorp(IAC) IAC/InterActiveCorp
(INVH) Invitation Homes Inc.
(KDP) Keurig Dr Pepper Inc.
(KKR) KKR & Co. Inc.
(LBRDK) Liberty Broadband Corp.
(LNG) Cheniere Energy Inc.
(LULU) Lululemon Athletica Inc.
(LYFT) Lyft Inc. Class A
(MDB) MongoDB Inc.
(MKL) Markel Corp.
(MOH) Molina Healthcare Inc.(MOH) Molina Healthcare Inc.
(MRNA) Moderna Inc.
(MRVL) Marvell Technology Inc.
(MTCH) Match Group Inc.
(NET) Cloudflare Inc. Class A
(NUAN) Nuance Communications Inc.(NUAN) Nuance Communications Inc.
(NVAX) Novavax Inc.(NVAX) Novavax Inc.
(NVCR) Novocure Ltd.
(OKTA) Okta Inc.(OKTA) Okta Inc.
(ON) ON Semiconductor Corp.
(PANW) Palo Alto Networks Inc.
(PCG) PG&E Corp.
(PINS) Pinterest Inc. Class A
(PLUG) Plug Power Inc.(PLUG) Plug Power Inc.
(PODD) Insulet Corp.(PODD) Insulet Corp.
(PTON) Peloton Interactive Inc. Class A(PTON) Peloton Interactive Inc. Class A
(RBLX) ROBLOX Corp.
(RNG) RingCentral Inc. Class A
(ROKU) Roku Inc.
(SBNY) Signature Bank/New York NY
(SGEN) Seagen Inc.(SGEN) Seagen Inc.
(SNAP) Snap Inc.
(SPLK) Splunk Inc.
(SQ) Square Inc.
(SSNC) SS&C Technologies Holdings Inc.(SSNC) SS&C Technologies Holdings Inc.
(SUI) Sun Communities Inc.
(TDOC) Teladoc Health Inc.
(TECH) Bio-Techne Corp.
(TRU) TransUnion
(TTD) Trade Desk Inc. Class A(TTD) Trade Desk Inc. Class A
(TWLO) Twilio Inc. Class A
(TXG) 10X Genomics Inc. Class A(TXG) 10X Genomics Inc. Class A
(U) Unity Software Inc.(U) Unity Software Inc.
(UBER) Uber Technologies Inc.(UBER) Uber Technologies Inc.
(VEEV) Veeva Systems Inc. Class A
(VICI) VICI Properties Inc.
(W) Wayfair Inc.(W) Wayfair Inc.
(WCN) Waste Connections Inc.
(WDAY) Workday Inc. Class A
(WORK) Slack Technologies Inc. Class A
(Z) Zillow Group Inc. Class C
(ZEN) Zendesk Inc.(ZEN) Zendesk Inc.
(ZM) Zoom Video Communications Inc. Class A
(ZS) Zscaler Inc.

Not in top 500 by capitalization but in S&P 500; thus, presumably, in FZIPX but not in the other extended market funds

(ALXN) Alexion Pharmaceuticals Inc.
(AME) AMETEK Inc.
(ANET) Arista Networks Inc.
(ARE) Alexandria Real Estate Equities Inc.
(AVY) Avery Dennison Corp.
(BKR) Baker Hughes Co. Class A
(BSX) Boston Scientific Corp.
(CAG) Conagra Brands Inc.
(COO) Cooper Cos. Inc.
(CTXS) Citrix Systems Inc.
(ED) Consolidated Edison Inc.
(EVRG) Evergy Inc.
(EXPE) Expedia Group Inc.
(EXR) Extra Space Storage Inc.
(FMC) FMC Corp.
(GD) General Dynamics Corp.
(GPN) Global Payments Inc.
(GWW) WW Grainger Inc.
(HBAN) Huntington Bancshares Inc./OH
(HOLX) Hologic Inc.
(IT) Gartner Inc.
(JBHT) JB Hunt Transport Services Inc.
(K) Kellogg Co.
(KHC) Kraft Heinz Co.
(KMI) Kinder Morgan Inc.
(KMX) CarMax Inc.
(LDOS) Leidos Holdings Inc.
(LEN) Lennar Corp. Class A
(LVS) Las Vegas Sands Corp.
(MAR) Marriott International Inc./MD Class A
(MPC) Marathon Petroleum Corp.
(MSCI) MSCI Inc. Class A
(MTB) M&T Bank Corp.
(MU) Micron Technology Inc.
(NDAQ) Nasdaq Inc.
(NTAP) NetApp Inc.
(OKE) ONEOK Inc.
(OMC) Omnicom Group Inc.
(ORLY) O'Reilly Automotive Inc.
(OTIS) Otis Worldwide Corp.
(PGR) Progressive Corp.
(POOL) Pool Corp.
(PPL) PPL Corp.
(PSX) Phillips 66
(PTC) PTC Inc.
(QRVO) Qorvo Inc.
(RJF) Raymond James Financial Inc.
(SJM) J M Smucker Co.
(SNPS) Synopsys Inc.
(SO) Southern Co.
(SPG) Simon Property Group Inc.
(SRE) Sempra Energy
(TDY) Teledyne Technologies Inc.
(TRMB) Trimble Inc.
(VRTX) Vertex Pharmaceuticals Inc.
(VTRS) Viatris Inc.
(WAB) Wabtec Corp.
(WELL) Welltower Inc.
(WHR) Whirlpool Corp.
(WST) West Pharmaceutical Services Inc.
(XRAY) Dentsply Sirona Inc.
(XYL) Xylem Inc./NY

Thoughts?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Tingting1013
Posts: 1423
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by Tingting1013 »

Wow. Putting in an sell order on my FZIPX tomorrow
stan1
Posts: 10204
Joined: Mon Oct 08, 2007 4:35 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by stan1 »

When did they sell TSLA? Speculation and a guess.
ruud
Posts: 484
Joined: Sat Mar 03, 2007 1:28 pm
Location: san francisco bay area

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by ruud »

I assume FZIPX is intended to be the completion fund for FNILX, not for a generic S&P 500 fund.

But because the market cap ratio between the "main" and completion index is about 5:1 (in both cases), any deviation in performance between the respective indexes (resulting from different decision for stocks going in the main vs. completion index) will be magnified 5x in the completion fund.

Didn't TSLA get added to the S&P 500 only in December 2020? That means during most your backtest it would have been in FNILX (large cap index) instead of FZIPX (completion index); whereas it would've been in the completion index for the other fund pairs. That might explain the difference.
.
User avatar
Topic Author
nisiprius
Advisory Board
Posts: 43777
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by nisiprius »

Tingting1013 wrote: Sat Jun 05, 2021 8:32 pm Wow. Putting in an sell order on my FZIPX tomorrow
I hope that's a joke?

I didn't say FZIPX was worse, I said it was surprisingly different.

This is a question about stock market composition, not a claim that FZIPX is underperforming. If I compare the Fidelity Zero Total Market Fund, FZROX, to a portfolio of 85% FNILX and 15% FZIPX,* FZIPX ought to "complete" FNILX and the two ought to add up to the total market. The match is almost perfect. This suggests that FNILX and FZIPX are doing just what they are supposed to do: breaking up the total market into two complementary pieces. Just different pieces than an S&P 500 fund and any of the other "extended index" funds.

Source

Image



*I don't know the exact correct percentages, I just made a guess
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
ruud
Posts: 484
Joined: Sat Mar 03, 2007 1:28 pm
Location: san francisco bay area

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by ruud »

nisiprius wrote: Sat Jun 05, 2021 8:44 pm *I don't know the exact correct percentages, I just made a guess
According to Portfolio Visualizer a ratio of 86/14 matches the closest. I'm in awe of your guessing ability.
.
User avatar
drumboy256
Posts: 126
Joined: Sat Jun 06, 2020 2:21 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by drumboy256 »

The zero extended fund is a joke. FSMAX is a much better, older, established fund that works--- although I have disdain for trying to keep an 85/15 split at any given time given the fluctuations in pricing. Anyone at Fidelity who wants total market should just use FSKAX or FXAIX and call it a day.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
Angst
Posts: 2672
Joined: Sat Jun 09, 2007 11:31 am

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by Angst »

Isn't much of it Tesla? All the funds (in nisi's 2nd graph) benefited from holding Tesla (as their largest holding too?), up to the point when Tesla moved into the S&P 500 and then it subsequently came to fall more (or do less well) than any of the various extended market funds, except of course for the one "extended market" fund that continued to hold Tesla, i.e. FZIPX.

Wait, FZIPX would not actually have held Tesla at all, before or after its moving into the S&P 500. Now I'm confused.

So maybe it's not so much that FZIPX did poorly afterwards, but that the "real" extended market funds did better for having lost their largest component, Tesla, just when Tesla began to do less well than most of the rest of the extended (smaller cap) market? Maybe that's it.
okwriter
Posts: 129
Joined: Mon Apr 12, 2021 2:00 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by okwriter »

Angst wrote: Sat Jun 05, 2021 9:52 pm Isn't much of it Tesla? All the funds (in nisi's 2nd graph) benefited from holding Tesla (as their largest holding too?), up to the point when Tesla moved into the S&P 500 and then it subsequently came to fall more (or do less well) than any of the various extended market funds, except of course for the one "extended market" fund that continued to hold Tesla, i.e. FZIPX.

Wait, FZIPX would not actually have held Tesla at all, before or after its moving into the S&P 500. Now I'm confused.

So maybe it's not so much that FZIPX did poorly afterwards, but that the "real" extended market funds did better for having lost their largest component, Tesla, just when Tesla began to do less well than most of the rest of the extended (smaller cap) market? Maybe that's it.
The Tesla explanation makes sense. FZIPX has never held it. The 2nd graph shows that FZIPX diverged right after the Covid crash, when the lack of Tesla would have slowed down its recovery relative to the other extended market funds.

Tesla was added to the S&P 500 in Dec 2020, and after that point it looks visually like all the extended funds behaved similarly.
User avatar
JoMoney
Posts: 11550
Joined: Tue Jul 23, 2013 5:31 am

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by JoMoney »

FWIW, the fund does seem to be tracking along with other similar indexes...
The Russell Index has two similar indexes, a Russell 2500 (which is the Russell 3000 Total Market minus the top 500 stocks by market cap), and a Russell "Small Cap Completeness" Index (which is the all the stocks in the Russell 3000 that are not in the S&P 500 index)
Image
LINK
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
jmanter
Posts: 56
Joined: Sat Sep 22, 2018 6:57 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by jmanter »

drumboy256 wrote: Sat Jun 05, 2021 8:56 pm The zero extended fund is a joke. FSMAX is a much better, older, established fund that works--- although I have disdain for trying to keep an 85/15 split at any given time given the fluctuations in pricing. Anyone at Fidelity who wants total market should just use FSKAX or FXAIX and call it a day.
FZROX is within a few basis points off the others as well. It's a perfectly good total market fund.
User avatar
Svensk Anga
Posts: 869
Joined: Sun Dec 23, 2012 5:16 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by Svensk Anga »

Maybe it’s not just a Tesla effect. I notice that Peloton is in the list that is missing from the Fidelity zero fund. Wasn’t this company one of the big winners in the early months of the shutdown? There may be others in this category. It is also a risk that the zero funds use sampling. Doing so might have missed a couple of last year’s other high flyers. If you are going to buy the haystack, it would be best to make sure you get the complete haystack. An S&P500 fund plus the Fido zero extended market fund does not get the job done due to mismatched indexes.
User avatar
JoMoney
Posts: 11550
Joined: Tue Jul 23, 2013 5:31 am

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by JoMoney »

Despite the strong similarities among Large-Cap Indexes, check out the disparity among "US Mid Cap Index Funds"
Image
LINK

... and of course, an "extended market index" is effectively a mid-cap index in it's own right too...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
aristotelian
Posts: 9247
Joined: Wed Jan 11, 2017 8:05 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by aristotelian »

stan1 wrote: Sat Jun 05, 2021 8:39 pm When did they sell TSLA? Speculation and a guess.
Would be my guess too. TSLA was not in SP500 until this year despite being too 10 in market cap. If Fidelity put it in their large cap index then their midcap index would appear to underperform a "completion" index.
User avatar
JoMoney
Posts: 11550
Joined: Tue Jul 23, 2013 5:31 am

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by JoMoney »

Looks like the "Fidelity Zero Extended Index" had a higher loading on "Value" over that period then other S&P index based extended market funds.
A PV factor regression shows FZIPX had a High-minus-Low (HML) loading of 0.29 relative to .05 for VEXMX , over the period of Oct 2018-May 2021

Similarly to the mid-cap funds I posted above, the ones with the highest "Value"/HML loading, the worse they did over that period.

Something that's been pointed out before, is for whatever reason the S&P 500 has a higher balance of "Mid Cap Value" stocks then the Total Market. This would make any index based on holding everything not in the S&P have a higher balance of "Mid Cap Growth" stocks.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
nedsaid
Posts: 14766
Joined: Fri Nov 23, 2012 12:33 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by nedsaid »

It is interesting that the Bogleheads Forum is pretty much now about Index picking.

If at first you try and don't succeed, blame the index.
A fool and his money are good for business.
User avatar
drumboy256
Posts: 126
Joined: Sat Jun 06, 2020 2:21 pm

Re: Why is the Fidelity Zero Extended Index Fund so different?

Post by drumboy256 »

nedsaid wrote: Sun Jun 06, 2021 11:57 am It is interesting that the Bogleheads Forum is pretty much now about Index picking.

If at first you try and don't succeed, blame the index.
To be fair.... total market should be "total market". The fact that there are different indexes to track the "total market" is pretty stupid (imo).
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
Post Reply