Asset management giant Fidelity recently made waves in the industry when it launched a series of fee-free index funds, including the Fidelity ZERO Total Stock Market Fund (FZROX). With its zero percent expense ratio, FZROX quickly gained popularity among investors, but some were left wondering how it compared to Fidelity's other popular total stock market fund, the Fidelity Total Market Index Fund (FSKAX).
If you're having trouble choosing between FSKAX vs. FZROX, here's how to know the similarities and differences between the two index funds.
First, it's important to note that both FSKAX and FZROX track the same benchmark: the Dow Jones U.S. Total Stock Market Index. This means they both hold a similar selection of stocks across the entire market spectrum, including large-cap, mid-cap, and small-cap companies.
However, there are some key differences between the two funds. For starters, FSKAX has been around much longer than FZROX, with a track record dating back to 1997. FZROX, on the other hand, was launched in 2018.
Another notable difference between the two funds is their expense ratio. While FZROX has a zero percent expense ratio, FSKAX has a very low expense ratio of 0.015 percent. While this may seem like a negligible difference, it can add up over time, particularly for investors with large portfolios.
But when it comes to performance, the two funds have been fairly similar. According to data from Morningstar, FZROX has returned 14.07 percent over the past year, while FSKAX has returned 14.01 percent. Over the past three years, FZROX has had an annualized return of 12.71 percent, while FSKAX has had an annualized return of 12.70 percent.
So which fund is better? The answer ultimately depends on your individual investment goals and preferences. For investors looking to save on fees, FZROX may be the better choice. However, FSKAX's longer track record and slightly lower expense ratio may be appealing to some investors.
It's also worth noting that while Fidelity's zero-fee funds are certainly a game-changer in the industry, fees and expenses are no longer the only factor to consider when choosing an index fund. It's important to look at other factors as well, such as the fund's underlying holdings, performance history, and overall investment strategy.
That being said, FZROX has certainly made a splash since its launch in 2018. The fund quickly became one of the fastest-growing mutual funds in history, reaching $1 billion in assets under management in just two months. As of June 2021, the fund has grown to nearly $6 billion in assets.
Warren Buffett once famously remarked: "Our favorite holding period is forever." True to his word, one of the oldest stocks in Buffett's portfolio is none other than Fidelity's own FSKAX. As of Berkshire Hathaway's most recent filing, the holding company owned over 1.1 billion shares of the fund, making it one of the largest holdings in their portfolio.
The battle to acquire new customers has only intensified between the mega investment brokerages with Fidelity's newly launched index funds. Fidelity's zero-fee funds have certainly made waves in the industry, and it will be interesting to see how other investment firms respond. For now, investors have more choices than ever when it comes to low-cost index fund options.
In conclusion, both FZROX and FSKAX are solid index fund options for investors looking for exposure to the total U.S. stock market. While there are some key differences between the two funds, their performance has been fairly similar. Ultimately, the choice between the two funds will depend on your individual investment goals and preferences.
