FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

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Dpmbball
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FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Dpmbball »

Hi,

Just want to double check that these Fidelity Zero fee index/ETF funds are what they appear to be. I know those here like Vanguard as I do too, however in my Roth IRA I would like to switch from yield and moderate growth investments to more growth oriented low fee low yield investments.

Since I am not already in the vanguard total market index/ETF and I am starting new. The question is - is there any reason why I shouldn’t start with Fidelity Zero fee index/ETFs either Total Market and or S&P 100 and or Large Cap?

Disclaimer: I have been a yield based investor and realize I am short changing myself if I don’t start to shift my AA more towards total return to utilize the 3-4% withdraw strategy along with realizing dividends after 60yo.

Thanks in advance. I am somewhat new to the site and after my recent research and reading/interacting with this site I do believe the withdraw strategy should be part of everyone’s retirement plan hence the question and hence my shift in focus.
Da5id
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Da5id »

No big reason I know not to use them. Mind you the difference in cost between that and the Vanguard ETFs/index isn't much to speak of IMO, and is not IMO material.

I just use BND/VXUS/VTI. I have a slight preference for ETFs for tax loss harvesting (selling at a known price vs close of business). I like that they are portable to another brokerage where mutual funds like FZROX might not be (or might involve fees to transact, I don't know for this fund specifically). If it is in a taxable account that portability matters. If it is in a tax deferred account whatever, you can always sell and buy the corresponding ETF and transfer. The portability issue isn't just theoretical, I ported my ETFs from Vanguard to Fidelity last year.
retireIn2020
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by retireIn2020 »

Dpmbball wrote: Tue May 14, 2024 3:50 pm The question is - is there any reason why I shouldn’t start with Fidelity Zero fee index/ETFs either Total Market and or S&P 100 and or Large Cap?
I use FZROX and FZILX in my IRA and nope, there is no reason not to invest in the Fidelity Zero funds in an IRA. Although you're not going to see a significant difference from other low-cost index funds.

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Doctor Rhythm
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Doctor Rhythm »

Main concern raised here is portability. The Zero fund can only be held at Fidelity, so if you change brokerages in the future, you would need to liquidate your position in FZROX which will expose you to capital gains tax. However, since you are talking about holding the fund in a retirement account, it wouldn't matter. I hold Fidelity's main total market fund FSKAX (ER 0.015%) in my Roth.
the_wiki
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by the_wiki »

Doctor Rhythm wrote: Tue May 14, 2024 4:28 pm Main concern raised here is portability. The Zero fund can only be held at Fidelity, so if you change brokerages in the future, you would need to liquidate your position in FZROX which will expose you to capital gains tax.
Honestly if you have sizable gains in a non-portable fund, you just won't change brokers. So I don't see it as a tax problem, but a locked into Fidelity problem. Which is exactly why Fidelity isn't letting them on other platforms like their other funds. They run it for free as a marketing and customer retention program.
aristotelian
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by aristotelian »

Doctor Rhythm wrote: Tue May 14, 2024 4:28 pm Main concern raised here is portability. The Zero fund can only be held at Fidelity, so if you change brokerages in the future, you would need to liquidate your position in FZROX which will expose you to capital gains tax. However, since you are talking about holding the fund in a retirement account, it wouldn't matter. I hold Fidelity's main total market fund FSKAX (ER 0.015%) in my Roth.
If I understand OP correctly they would be purchasing FZROX in Roth so there is no concern about portability.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Wiggums »

We buy Vanguard at Vanguard and Fidelity at Fidelity. Not much difference in return between the total market index funds. I wouldn’t use Fidelity zero in taxable in the off chance that you want to leave Fidelity. In a Roth, you can always sell without tax implications.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by jebmke »

the_wiki wrote: Tue May 14, 2024 4:49 pm
Doctor Rhythm wrote: Tue May 14, 2024 4:28 pm Main concern raised here is portability. The Zero fund can only be held at Fidelity, so if you change brokerages in the future, you would need to liquidate your position in FZROX which will expose you to capital gains tax.
Honestly if you have sizable gains in a non-portable fund, you just won't change brokers. So I don't see it as a tax problem, but a locked into Fidelity problem. Which is exactly why Fidelity isn't letting them on other platforms like their other funds. They run it for free as a marketing and customer retention program.
yes; and personally, I would never buy an asset that could get trapped like that.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by RyeBourbon »

My Roth is 100% FZROX.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by nisiprius »

Total market index funds from major firms are much of a muchness. FZROX is fine in a tax-advantaged account.

The wiki article, Three-fund portfolio, specifically mentions FZROX and FSKAX (the regular Fidelity Total Market Index Fund) as suitable for the US stock component. However, FZROX contains a footnote,
Fidelity ZERO funds are not recommended for use in taxable accounts due to their lack of portability. When transferring to a different brokerage, the fund will have to be liquidated, thereby creating a taxable event.
The lack of portability is a concern, and before opting for FZROX you should be sure what your plan is in the event that you ever leave Fidelity. There won't be much to the plan even in a Roth but you should figure it out. You could exchange FZROX for FSKAX and transfer in kind--but will the receiving brokerage charge a transaction fee for selling FSKAX later? Will Fidelity let you do a same-day sell-to-buy out of FZROX and into a non-Fidelity total market index fund? Will Fidelity let you do a same-day sell-to-buy out of FZROX and into a non-Fidelity total market ETF like VTI?

Beyond portability, the supposed advantage of a zero expense ratio, while a brilliant marketing coup against Vanguard, is really very small. And on the other hand, any supposed disadvantages of following Fidelity's own index, and statistically sampling the index instead of replicating it by actually owning all the holdings, are also very small.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by ladycat »

An additional note about portability of Fidelity funds. I recently contacted Schwab about transferring Fidelity Total Market (FSKAX) or Fidelity S&P 500 (FXAIX) to a brokerage account, and the Schwab rep said those funds could not be transferred in-kind. Seems strange since you can purchase Fidelity funds (for a fee) at Schwab. So, it's not just the Fidelity Zero funds that are not portable.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by furwut »

I hold Vanguard ETFs at Fidelity.

Reason are:
  • I feel the index used is more robust
  • Holdings portable without exchanging
  • FZROX is a promotional loss leader for Fidelity
  • When comparing 2 funds if the cost between the two is less than 10 basis points other factors mean more
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Cocoa Beach Bum »

furwut wrote: Tue May 14, 2024 7:13 pm I hold Vanguard ETFs at Fidelity.

Reason are:
  • I feel the index used is more robust
...
The index used by VTI is so robust that only Vanguard uses it. 🙄
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by 3000 »

Cocoa Beach Bum wrote: Tue May 14, 2024 7:32 pm
furwut wrote: Tue May 14, 2024 7:13 pm I hold Vanguard ETFs at Fidelity.

Reason are:
  • I feel the index used is more robust
...
The index used by VTI is so robust that only Vanguard uses it. 🙄
Others simply can’t handle it!
CletusCaddy
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by CletusCaddy »

Surprised no one has mentioned that the ZERO funds have outperformed all other total market index funds since inception
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by whodidntante »

CletusCaddy wrote: Tue May 14, 2024 8:47 pm Surprised no one has mentioned that the ZERO funds have outperformed all other total market index funds since inception
I have seen a few Bogleheads engage in holding count contents here, under the assumption that "more is better." But I don't think that's true at the extremes. I wonder if the "sampling" method used to build the fund excludes some junk stocks, or stocks with unacceptably high trading costs. If so, that would make it not just a cheaper fund, but a better one.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by CletusCaddy »

whodidntante wrote: Tue May 14, 2024 8:58 pm
CletusCaddy wrote: Tue May 14, 2024 8:47 pm Surprised no one has mentioned that the ZERO funds have outperformed all other total market index funds since inception
I have seen a few Bogleheads engage in holding count contents here, under the assumption that "more is better." But I don't think that's true at the extremes. I wonder if the "sampling" method used to build the fund excludes some junk stocks, or stocks with unacceptably high trading costs. If so, that would make it not just a cheaper fund, but a better one.
Exactly I think there is something qualitatively better about these funds
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by UpperNwGuy »

whodidntante wrote: Tue May 14, 2024 8:58 pm
CletusCaddy wrote: Tue May 14, 2024 8:47 pm Surprised no one has mentioned that the ZERO funds have outperformed all other total market index funds since inception
I have seen a few Bogleheads engage in holding count contents here, under the assumption that "more is better." But I don't think that's true at the extremes. I wonder if the "sampling" method used to build the fund excludes some junk stocks, or stocks with unacceptably high trading costs. If so, that would make it not just a cheaper fund, but a better one.
When I was a novice investor I searched for a stock index fund that excluded the dogs. I didn't find one, so I stopped looking. Perhaps FZROX is such a fund?
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by CletusCaddy »

UpperNwGuy wrote: Tue May 14, 2024 9:16 pm
whodidntante wrote: Tue May 14, 2024 8:58 pm
CletusCaddy wrote: Tue May 14, 2024 8:47 pm Surprised no one has mentioned that the ZERO funds have outperformed all other total market index funds since inception
I have seen a few Bogleheads engage in holding count contents here, under the assumption that "more is better." But I don't think that's true at the extremes. I wonder if the "sampling" method used to build the fund excludes some junk stocks, or stocks with unacceptably high trading costs. If so, that would make it not just a cheaper fund, but a better one.
When I was a novice investor I searched for a stock index fund that excluded the dogs. I didn't find one, so I stopped looking. Perhaps FZROX is such a fund?
My guess is it’s the microcaps
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by nassau34 »

The chances of my ever totally leaving Fidelity are around 0. And even if I moved everything else out, I see no reason not to simply leave the ZERO funds in taxable where they are.
Last edited by nassau34 on Wed May 15, 2024 3:10 am, edited 1 time in total.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by whodidntante »

nassau34 wrote: Tue May 14, 2024 10:04 pm The chances of my ever totally leaving Fidelity are around 0. And even if I moved everything else out, I see no reason not to simply leave the ZERO funds in taxable where they are.
Fidelity doesn't want to work with customers who live outside the USA. If your next stop is Columbia and not the one in Maryland, maybe something to think about. They will generally give you a notice period as a courtesy, but they have the right to liquidate your account if you do nothing. There isn't anything you can do to stop it, realistically. That could be quite a tax bill.

It's also more likely that a mutual fund will distribute capital gains than an ETF. This shows up more in down trending markets, when the mutual fund is forced to sell shares at a gain to meet redemptions. The fund eventually runs out of losers to sell, and then existing shareholders get a capital gains distribution.

Maybe these things happen, maybe they don't. But worth considering. These are important considerations for me.
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Dpmbball
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Dpmbball »

Well I am with Merrill as I am Diamond and would open through Merrill Wealth Management or Merrill Esge but if these funds are exclusive to Fidelity or tough to transfer then that can be a deal breaker

I’ll give my Merrill people a call
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by INLAFF »

whodidntante wrote: Tue May 14, 2024 10:18 pm If your next stop is Columbia and not the one in Maryland, maybe something to think about
The one in New York City?
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by whodidntante »

INLAFF wrote: Tue May 14, 2024 10:51 pm
whodidntante wrote: Tue May 14, 2024 10:18 pm If your next stop is Columbia and not the one in Maryland, maybe something to think about
The one in New York City?
I hear the Hamptons are much nicer.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by dcabler »

Dpmbball wrote: Tue May 14, 2024 10:35 pm Well I am with Merrill as I am Diamond and would open through Merrill Wealth Management or Merrill Esge but if these funds are exclusive to Fidelity or tough to transfer then that can be a deal breaker

I’ll give my Merrill people a call
They can not be transferred - they can only be held at Fidelity.

If I were a TSM-based or "500" based investor I would hold ZERO funds, but only in tax advantaged space, due to the lack of portability.
I have no plans to ever leave Fidelity, but you can never say never. In taxable space, it's always ETFs for tax efficiency and portability.

Cheers.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by sycamore »

dcabler wrote: Wed May 15, 2024 6:06 am
Dpmbball wrote: Tue May 14, 2024 10:35 pm Well I am with Merrill as I am Diamond and would open through Merrill Wealth Management or Merrill Esge but if these funds are exclusive to Fidelity or tough to transfer then that can be a deal breaker

I’ll give my Merrill people a call
They can not be transferred - they can only be held at Fidelity.

If I were a TSM-based or "500" based investor I would hold ZERO funds, but only in tax advantaged space, due to the lack of portability.
I have no plans to ever leave Fidelity, but you can never say never. In taxable space, it's always ETFs for tax efficiency and portability.

Cheers.
Dmpbball have you looked at the prospectus?

https://www.actionsxchangerepository.fi ... 23#doc_div
Purchase and Sale of Shares

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. Shares also may be available to certain broker-dealers that have entered into arrangements with Fidelity.
See the bolded parts above. Maybe Merrill has entered into arrangements with Fidelity?

Please let us know what you find out.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by valleyrock »

What's the Schwab version of this? (Asking for a friend.)
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by retired@50 »

valleyrock wrote: Wed May 15, 2024 9:13 am What's the Schwab version of this? (Asking for a friend.)
Schwab has a total US stock market fund, but it has an expense ratio that isn't zero.

SWTSX - expense ratio = 0.03%. At 3 basis points, total US stock market coverage is a bargain.

Regards,
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Minty »

CletusCaddy wrote: Tue May 14, 2024 9:05 pm
whodidntante wrote: Tue May 14, 2024 8:58 pm
CletusCaddy wrote: Tue May 14, 2024 8:47 pm Surprised no one has mentioned that the ZERO funds have outperformed all other total market index funds since inception
I have seen a few Bogleheads engage in holding count contents here, under the assumption that "more is better." But I don't think that's true at the extremes. I wonder if the "sampling" method used to build the fund excludes some junk stocks, or stocks with unacceptably high trading costs. If so, that would make it not just a cheaper fund, but a better one.
Exactly I think there is something qualitatively better about these funds
I suspect the secret sauce is in part that FZROX benchmarks against a proprietary index and therefore saves a bit on the licensing cost. Plus, as loss-leaders, Fido has an incentive for the Zeros to shine. If Fido's "no fee" index funds underperformed, that would raise serious expertise/integrity questions.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by the_wiki »

Dpmbball wrote: Tue May 14, 2024 10:35 pm Well I am with Merrill as I am Diamond and would open through Merrill Wealth Management or Merrill Esge but if these funds are exclusive to Fidelity or tough to transfer then that can be a deal breaker

I’ll give my Merrill people a call
No need to call - you simply cannot hold the Zero funds outside of Fidelity. Period.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by the_wiki »

retired@50 wrote: Wed May 15, 2024 9:32 am
valleyrock wrote: Wed May 15, 2024 9:13 am What's the Schwab version of this? (Asking for a friend.)
Schwab has a total US stock market fund, but it has an expense ratio that isn't zero.

SWTSX - expense ratio = 0.03%. At 3 basis points, total US stock market coverage is a bargain.

Regards,
Or SCHB if you prefer ETF
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by dcabler »

Minty wrote: Wed May 15, 2024 9:35 am
CletusCaddy wrote: Tue May 14, 2024 9:05 pm
whodidntante wrote: Tue May 14, 2024 8:58 pm
CletusCaddy wrote: Tue May 14, 2024 8:47 pm Surprised no one has mentioned that the ZERO funds have outperformed all other total market index funds since inception
I have seen a few Bogleheads engage in holding count contents here, under the assumption that "more is better." But I don't think that's true at the extremes. I wonder if the "sampling" method used to build the fund excludes some junk stocks, or stocks with unacceptably high trading costs. If so, that would make it not just a cheaper fund, but a better one.
Exactly I think there is something qualitatively better about these funds
I suspect the secret sauce is in part that FZROX benchmarks against a proprietary index and therefore saves a bit on the licensing cost. Plus, as loss-leaders, Fido has an incentive for the Zeros to shine. If Fido's "no fee" index funds underperformed, that would raise serious expertise/integrity questions.
Yep - and as things would have it, they use S&P to manage their ZERO indexes. Simpler construction rules for Fido's "500" index vs. S&P 500. Guessing it would also help avoid any legal issues, too.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by sycamore »

the_wiki wrote: Wed May 15, 2024 9:40 am
Dpmbball wrote: Tue May 14, 2024 10:35 pm Well I am with Merrill as I am Diamond and would open through Merrill Wealth Management or Merrill Esge but if these funds are exclusive to Fidelity or tough to transfer then that can be a deal breaker

I’ll give my Merrill people a call
No need to call - you simply cannot hold the Zero funds outside of Fidelity. Period.
See my earlier post regarding the prospectus "Shares also may be available to certain broker-dealers that have entered into arrangements with Fidelity.".

Are you sure no broker-dealers have done this? How would we know?
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by CharlesDickens »

ladycat wrote: Tue May 14, 2024 6:57 pm An additional note about portability of Fidelity funds. I recently contacted Schwab about transferring Fidelity Total Market (FSKAX) or Fidelity S&P 500 (FXAIX) to a brokerage account, and the Schwab rep said those funds could not be transferred in-kind. Seems strange since you can purchase Fidelity funds (for a fee) at Schwab. So, it's not just the Fidelity Zero funds that are not portable.
That is very interesting. In my Fidelity taxable account I have deliberately shifted new money investing from a Fidelity Zero fund to FXAIX for portability. Has anyone else been declined for a transfer request for FXAIX?
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Jack FFR1846 »

Transferring from anywhere with an in house mutual fund to another house can sometimes be done, but there are so many equivalent mutual funds and ETFs that I don't see why one should be married to a fund.

Transferring within an IRA from Fidelity to Vanguard went as follows:
I had to liquidate the amount desired. I got an FBO check from Fidelity that I mailed to Vanguard. Vanguard sent me what was the equivalent of a book of paperwork to do the transfer. A week later, they sent a second book of more forms saying they forgot the first time. I snail mailed the forms and once at Vanguard, bought the mutual fund (developed international) that was equal to the fund I had at Fidelity.

Some years later, I had become tired of the wrong answers Vanguard kept giving me. First I went to open a brokerage account at Vanguard so I could have ETFs. Then I transferred the mutual fund. Then after Bogleheads gave me the double secret "correct answers" Vanguard telephone number, I converted the mutual fund to an ETF. Once done, I let it settle for 2 weeks. I did the transfer from there to TDAmeritrade who simply moved it as it was no fuss, no problems. I collected a bonus for the move. About $300k.

With TDA bought by Schwab, I decided to consolidate and did a transfer into Schwab. No fuss, no muss and a bonus for transferring.

After I retired, I moved my work account from eTrade to Schwab. It was all BRK/b and moved in kind. Schwab refunded me the $75 closing fee.

I moved that developed international ETF fund from Schwab to Fidelity to simplify things further. No muss, no fuss and they refunded me the closing fee from Schwab. I later decided I wanted no more international and easily did a sale of VEA to buy FZROX. It was added to an existing IRA. Ironically, this is where the original transfer to Vanguard had come from.

So don't be afraid of owning any fund that's "proprietary" because you can't move it, if you're in an IRA of any kind. Just be ready to sell and move cash or sell and buy an ETF.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by AssetClassJunkie »

CletusCaddy wrote: Tue May 14, 2024 9:25 pm
UpperNwGuy wrote: Tue May 14, 2024 9:16 pm
whodidntante wrote: Tue May 14, 2024 8:58 pm
CletusCaddy wrote: Tue May 14, 2024 8:47 pm Surprised no one has mentioned that the ZERO funds have outperformed all other total market index funds since inception
I have seen a few Bogleheads engage in holding count contents here, under the assumption that "more is better." But I don't think that's true at the extremes. I wonder if the "sampling" method used to build the fund excludes some junk stocks, or stocks with unacceptably high trading costs. If so, that would make it not just a cheaper fund, but a better one.
When I was a novice investor I searched for a stock index fund that excluded the dogs. I didn't find one, so I stopped looking. Perhaps FZROX is such a fund?
My guess is it’s the microcaps
On this topic, FSKAX (expense ratio 0.015%) currently has 3,862 holdings whereas FZROX (expense ratio 0%) has only 2,635 (1,227 fewer companies). The 5-year quarter-end returns were 14.25% for FSKAX [1] and 14.42% for FZROX [2]. As CletusCaddy points out, it seems likely that the additional companies in FSKAX are predominantly very small ones. Thus it seems plausible that FZROX's better performance is attributable to its having less weight in small/value, combined with recent market trends. Additionally, FZROX had its inception date of 08/02/2018, less than 6 years ago, so we essentially have no meaningful data for long-term investing — chance dominates. In my limited view, choosing FZROX for performance reasons is the type of performance chasing that should be avoided, and the additional diversification of FSKAX is worth the piddling 0.015% expense — diversification both in the sense of holdings, and in the sense of portability (i.e. unknowns).

Refs
[1] https://fundresearch.fidelity.com/mutua ... /315911693
[2] https://fundresearch.fidelity.com/mutua ... /31635T708
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by uaeebs86 »

furwut wrote: Tue May 14, 2024 7:13 pm I hold Vanguard ETFs at Fidelity.

Reason are:
  • FZROX is a promotional loss leader for Fidelity
I'm curious about this reason.

Are you against loss leaders at other businesses? Do you not order off the value menu at restaurants, have rotisserie chicken/pizza/hot dogs at Costco, avoid the front page ad sales at the grocery store, etc.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by ej76az »

Given that only a tiny percentage of stocks have outperformed T-Bills, should FZROX investors be concerned that the fund invests in far fewer stocks than VTI does?

FZROX prospectus:
  • "normally invests at least 80% of its assets in common stocks included in the Fidelity U.S. Total Investable Market Index"
  • "Using statistical sampling techniques... to attempt to replicate the returns of the Fidelity U.S. Total Investable Market Index"
  • "The fund may not always hold all of the same securities as the Fidelity U.S. Total Investable Market Index"
number of holdings, according to Morningstar:
  • FZROX: 2612 (3/31/24)
  • VTI: 3714 (4/30/24)
Hendrik Bessembinder, "Do stocks outperform Treasury bills?":
  • only 4.3% of stocks are responsible for boosting the market’s overall returns higher than those on Treasury bills
  • the remaining 95.7% of stocks collectively matched one-month T-bills
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by sycamore »

ej76az wrote: Sun May 19, 2024 6:05 pm Given that only a tiny percentage of stocks have outperformed T-Bills, should FZROX investors be concerned that the fund invests in far fewer stocks than VTI does?
No, not in the least. Those 1102 stocks in VTSAX but not FZROX are a probably a fraction of 1% of total market cap.

FZROX will almost certainly acquire a stock that becomes big enough to matter more than the other 1101 stocks. Maybe it won't happen when that stock is micro cap but by the time it reaches small cap it will be investible enough.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by ej76az »

sycamore wrote: Sun May 19, 2024 7:35 pm Those 1102 stocks in VTSAX but not FZROX are a probably a fraction of 1% of total market cap.

FZROX will almost certainly acquire a stock that becomes big enough to matter more than the other 1101 stocks
"probably"? "almost certainly"? yikes, I would not assume that 30% of stocks constitute less than 1% of market cap, nor would I assume that Fido will buy the missing stocks before they moon

BTW, int'l is even worse:
FZILX: 2278
VXUS: 8559
Bessembinder: the top-performing 2.4% of stocks account for all of the net global stock market wealth creation from 1991 to 2020
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by sycamore »

ej76az wrote: Sun May 19, 2024 8:14 pm
sycamore wrote: Sun May 19, 2024 7:35 pm Those 1102 stocks in VTSAX but not FZROX are a probably a fraction of 1% of total market cap.

FZROX will almost certainly acquire a stock that becomes big enough to matter more than the other 1101 stocks
"probably"? "almost certainly"? yikes, I would not assume that 30% of stocks constitute less than 1% of market cap, nor would I assume that Fido will buy the missing stocks before they moon

BTW, int'l is even worse:
FZILX: 2278
VXUS: 8559
Bessembinder: the top-performing 2.4% of stocks account for all of the net global stock market wealth creation from 1991 to 2020
Fair point we should not assume. I used language like "probably" to convey that I didn't have the exact answer at hand.

The information is out there, just need to find it.

Here's one old reference to get started: https://www.morningstar.com/etfs/untang ... wn-by-size. It's not current but you can tell that the smallest of the small are rather numerous but as a percentage they're very small. It also shows that even CRSP Total Market (used by Vanguard) doesn't include all of the total market.

Back to your original question... what do you think of the S&P 500 fund? It only has 500 stocks and is missing 1000's of stocks. If missing out on 1000+ stocks at the end of the smallest cap is bad, what does that mean for the S&P 500 that's missing mid-caps and much more of the small caps?

Point is that practically speaking there's going to be a cut-off on the number of the tiniest stocks that can be included. Why is there a cut off? Because there's not enough of the stock shares that can even be traded in the first place!

So for you is the limit 500? Is it the Russell 1000 or 3000?

I'd be perfectly happy with 500, 1000, 3000, or whatever Fidelity and CRSP have chosen.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by ej76az »

sycamore wrote: Sun May 19, 2024 8:44 pm what do you think of the S&P 500 fund? It only has 500 stocks and is missing 1000's of stocks
That kind of fund is even more concerning. Bessembinder's research was based on "every U.S. common stock traded on the New York and American stock exchanges and the Nasdaq since 1926." I assume :wink: the 4.3% that outperformed T-Bills did not moon AFTER making it to the S&P 500 Index. Some day I should study his articles and data.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by sycamore »

ej76az wrote: Sun May 19, 2024 8:58 pm
sycamore wrote: Sun May 19, 2024 8:44 pm what do you think of the S&P 500 fund? It only has 500 stocks and is missing 1000's of stocks
That kind of fund is even more concerning. Bessembinder's research was based on "every U.S. common stock traded on the New York and American stock exchanges and the Nasdaq since 1926." I assume :wink: the 4.3% that outperformed T-Bills did not moon AFTER making it to the S&P 500 Index. Some day I should study his articles and data.
Also, take a look at old Bogleheads threads on the subject. Here's a search to get started. https://www.google.com/search?q=500+bes ... eheads.org

One thread in particular: viewtopic.php?t=381547
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by thedaybeforetoday »

Dpmbball wrote: Tue May 14, 2024 10:35 pm Well I am with Merrill as I am Diamond and would open through Merrill Wealth Management or Merrill Esge but if these funds are exclusive to Fidelity or tough to transfer then that can be a deal breaker

I’ll give my Merrill people a call
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by muffins14 »

ej76az wrote: Sun May 19, 2024 8:14 pm
sycamore wrote: Sun May 19, 2024 7:35 pm Those 1102 stocks in VTSAX but not FZROX are a probably a fraction of 1% of total market cap.

FZROX will almost certainly acquire a stock that becomes big enough to matter more than the other 1101 stocks
"probably"? "almost certainly"? yikes, I would not assume that 30% of stocks constitute less than 1% of market cap, nor would I assume that Fido will buy the missing stocks before they moon

BTW, int'l is even worse:
FZILX: 2278
VXUS: 8559
Bessembinder: the top-performing 2.4% of stocks account for all of the net global stock market wealth creation from 1991 to 2020

As a similar exercise, compare the S&P 500 to VTI. 500 stocks vs 3700 has similar performance.

Even once you get to stock #13 of 3700, it makes up less than 1% of the total value. I think you have more trust in the ability of a manager to follow an index. Or at least show your evidence that managers are unable to follow the index with reasonable tracking error.
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by ladycat »

CharlesDickens wrote: Wed May 15, 2024 1:56 pm
ladycat wrote: Tue May 14, 2024 6:57 pm An additional note about portability of Fidelity funds. I recently contacted Schwab about transferring Fidelity Total Market (FSKAX) or Fidelity S&P 500 (FXAIX) to a brokerage account, and the Schwab rep said those funds could not be transferred in-kind. Seems strange since you can purchase Fidelity funds (for a fee) at Schwab. So, it's not just the Fidelity Zero funds that are not portable.
That is very interesting. In my Fidelity taxable account I have deliberately shifted new money investing from a Fidelity Zero fund to FXAIX for portability. Has anyone else been declined for a transfer request for FXAIX?
The Schwab rep said something to the effect that "they used to have an arrangement with Fidelity", but don't anymore.

An ETrade rep said they could transfer my Fido funds in kind, but I've not been impressed with online reviews of eTrade, so I'm sticking with Fido for existing holdings. I can put new monies into portable ETFs or start a brokerage with Schwab .
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by ej76az »

muffins14 wrote: Mon May 20, 2024 6:50 am I think you have more trust in the ability of a manager to follow an index. Or at least show your evidence that managers are unable to follow the index with reasonable tracking error.
I don't understand. Neither sycamore nor I said anything about managers being unable to track indexes. Fido is clear in its ZERO funds prospectus that the funds only "sample" the indexes.

Let me recapitulate. Research by Bessembinder (and many others) shows that only a tiny percentage of stocks outperform cash or T-Bills (the "superstocks"). As Bogleheads, we can all agree that no one has figured out a reliable methodology for knowing in advance which stocks will turn out to be superstocks, so we want to buy the total market. The OP asked about Fidelity's ZERO total stock market funds vs. Vanguard's total stock market funds for a Roth IRA. My concern is that Fidelity only "samples" the indexes for its ZERO funds, whereas Vanguard buys the whole haystack.

Here's the relevant data from the Fido and Vanguard websites (including Fido's total index funds with ultra-low ERs):

U.S. total stock market:
  • FZROX: 2635 stocks, 0% ER
  • FSKAX: 3856 stocks, .015% ER
  • VTI: 3719 stocks, ,03% ER
FZROX is missing 29% of the stocks that VTI owns.

int'l total stock market:
  • FZILX: 2273 stocks, 0% ER
  • FTIHX: 5092 stocks, .06% ER
  • VXUS: 8616 stocks, .08% ER
FZILX is missing 74% (!) of the stocks that VXUS owns.

So here are my questions:
  • Is it concerning that the ZERO funds only "sample" the total stock market and thereby omit a huge percentage of stocks?
  • Is it possible (probable?) that some (many?) of the omitted stocks will turn out to be superstocks before the ZERO managers buy them?
  • Is is therefore worthwhile to pay an ultra-low ER in order to capture the whole haystack?
  • Is FSKAX>VTI>FZROX?
  • Is VXUS>FTIHX>FZILX?
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by muffins14 »

ej76az wrote: Mon May 20, 2024 1:07 pm
muffins14 wrote: Mon May 20, 2024 6:50 am I think you have more trust in the ability of a manager to follow an index. Or at least show your evidence that managers are unable to follow the index with reasonable tracking error.
I don't understand. Neither sycamore nor I said anything about managers being unable to track indexes. Fido is clear in its ZERO funds prospectus that the funds only "sample" the indexes.

Let me recapitulate. Research by Bessembinder (and many others) shows that only a tiny percentage of stocks outperform cash or T-Bills (the "superstocks"). As Bogleheads, we can all agree that no one has figured out a reliable methodology for knowing in advance which stocks will turn out to be superstocks, so we want to buy the total market. The OP asked about Fidelity's ZERO total stock market funds vs. Vanguard's total stock market funds for a Roth IRA. My concern is that Fidelity only "samples" the indexes for its ZERO funds, whereas Vanguard buys the whole haystack.

Here's the relevant data from the Fido and Vanguard websites (including Fido's total index funds with ultra-low ERs):

U.S. total stock market:
  • FZROX: 2635 stocks, 0% ER
  • FSKAX: 3856 stocks, .015% ER
  • VTI: 3719 stocks, ,03% ER
FZROX is missing 29% of the stocks that VTI owns.

int'l total stock market:
  • FZILX: 2273 stocks, 0% ER
  • FTIHX: 5092 stocks, .06% ER
  • VXUS: 8616 stocks, .08% ER
FZILX is missing 74% (!) of the stocks that VXUS owns.

So here are my questions:
  • Is it concerning that the ZERO funds only "sample" the total stock market and thereby omit a huge percentage of stocks?
  • Is it possible (probable?) that some (many?) of the omitted stocks will turn out to be superstocks before the ZERO managers buy them?
  • Is is therefore worthwhile to pay an ultra-low ER in order to capture the whole haystack?
  • Is FSKAX>VTI>FZROX?
  • Is VXUS>FTIHX>FZILX?

You seem to be claiming that
1) you are not saying they can’t track the index
2) you are indeed claiming they can’t track the index because they don’t hold all the stocks.

Both ideas 1 and 2 can’t be held simultaneously. Either you think they can’t track the index or you think they can

The probability that some stock currently #3500 then became so valuable so quickly that FZROX was permanently going to trail VTI would be quite small. Since we know the top 500 already perform similarly to the top 3719, you would imagine the stocks 501-3719 are not moving the needle a ton. If that’s what we observe, then stocks 2500-3719 should be even less important than the ones 501-2500.

Think of it like you have a 10 ton boat going down the river. You are worried that perhaps if you hit it with a baseball from the shoreline, it will veer off course and never arrive at its destination. In reality, the baseball will not problematically alter the momentum of the ship.

Most stocks are baseballs, not hypersonic missiles
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by bople »

ej76az wrote: Mon May 20, 2024 1:07 pm So here are my questions:
  • Is it concerning that the ZERO funds only "sample" the total stock market and thereby omit a huge percentage of stocks?
  • Is it possible (probable?) that some (many?) of the omitted stocks will turn out to be superstocks before the ZERO managers buy them?
  • Is is therefore worthwhile to pay an ultra-low ER in order to capture the whole haystack?
  • Is FSKAX>VTI>FZROX?
  • Is VXUS>FTIHX>FZILX?
I don't think it is a concern that they "sample" and it is probably the way they keep the costs a bit lower for themselves. They will not miss the superstocks since by the time that the superstocks get even a little big, they will be incorporated into the "sample" that the ZERO funds track.

Here is the performance of FZROX vs VTI and FZILX vs VXUS from the inception date of FZILX. The ZERO funds have slightly outperformed to the tune of 12 bps for the former and 28 bps for the latter. https://testfol.io/?d=eJytj01LAzEQhv%2F ... XRyQ%3D%3D

The real question is this outperformance due to the 0% ER or the smaller subset of stocks? Could the reverse be true? That not having the super small microcap stocks in the index is a good thing?
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Re: FZROX - Fidelity ZERO® Total Market Index Fund - Am I missing something

Post by Lyrrad »

I believe that the ZERO funds cannot be donated to a donor advised fund. For that reason alone, I would prefer to use the fee versions of Fidelity’s funds in a taxable account.

I wouldn’t mind using a ZERO fund in my IRA.
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