FZIPX: In-Depth Analysis of Fidelity ZERO® Extended Market Index Fund
Maximizing Exposure to Mid and Small-Cap U.S. Stocks with Zero Expenses
FZIPX: In-Depth Analysis of Fidelity ZERO® Extended Market Index Fund
Maximizing Exposure to Mid and Small-Cap U.S. Stocks with Zero Expenses
Fidelity’s FZIPX (Fidelity ZERO® Extended Market Index Fund) is a standout option for investors seeking broad exposure to mid and small-cap U.S. stocks without incurring management fees. Launched on September 13, 2018, FZIPX has quickly become a favored choice among cost-conscious investors aiming to diversify their portfolios with growth-oriented assets. This article provides a comprehensive analysis of FZIPX, exploring its features, performance, benefits, and how it fits into various investment strategies.
Table of Contents
- Introduction
- Fund Overview
- Performance Analysis
- Holdings and Diversification
- Fees and Expenses
- Tax Considerations
- Dividend Policies and Reinvestment
- Comparing FZIPX to Similar Funds
- Integrating FZIPX into Your Portfolio
- Suitability for Different Investor Profiles
- Fund Manager and Management
- Conclusion
- Frequently Asked Questions (FAQ)
Introduction
Investing in the stock market offers numerous opportunities for wealth accumulation, but selecting the right funds can be daunting. Total market index funds have emerged as popular choices due to their diversification, low costs, and passive management approach. Among these, Fidelity’s ZERO® Extended Market Index Fund (FZIPX) distinguishes itself with a 0% expense ratio, providing investors with a cost-effective way to gain exposure to mid and small-cap U.S. stocks.
Fund Overview
Objective
The primary objective of FZIPX is to provide investment results that correspond to the total return of stocks of mid- to small-capitalization U.S. companies. By targeting this specific segment of the market, FZIPX aims to capture the growth potential inherent in smaller companies while maintaining diversification across various industries.
Strategy
FZIPX employs a passive investment strategy, seeking to replicate the performance of the Fidelity U.S. Extended Investable Market Index. This index is a float-adjusted, market capitalization-weighted index designed to reflect the performance of U.S. mid- and small-cap stocks. The fund typically invests at least 80% of its assets in common stocks included in this index.
Key aspects of FZIPX’s strategy include:
- Statistical Sampling: Utilizing statistical sampling techniques to replicate the index’s performance with a smaller number of securities, enhancing efficiency without compromising diversification.
- Factor Consideration: Incorporating factors such as capitalization, industry exposures, dividend yield, price/earnings (P/E) ratio, price/book (P/B) ratio, and earnings growth to mirror the index accurately.
- Security Lending: Lending securities to earn additional income for the fund, thereby potentially enhancing returns.
Risk Factors
Investing in FZIPX involves certain risks, primarily associated with its focus on mid and small-cap stocks:
- Market Volatility: Smaller companies tend to be more volatile than large-cap stocks, leading to greater price fluctuations.
- Economic Sensitivity: Mid and small-cap stocks can be more sensitive to economic downturns and adverse market conditions.
- Liquidity Risk: Some smaller companies may have lower trading volumes, potentially impacting the fund’s liquidity.
Performance Analysis
Understanding a fund’s historical performance is crucial for assessing its potential future returns and risks. Below is a detailed analysis of FZIPX’s performance metrics.
Historical Returns
FZIPX has demonstrated robust performance since its inception on September 13, 2018. Here’s a snapshot of its average annual returns:
| Time Frame | Average Annual Return |
|---|---|
| 1 Year | +34.88% |
| 3 Years | +6.89% |
| 5 Years | +11.26% |
| Life | +9.15% |
Key Insights:
- 1-Year Return: An impressive +34.88% return reflects strong recent performance, likely influenced by favorable market conditions for mid and small-cap stocks.
- Long-Term Growth: Over a 5-year period, FZIPX has delivered an average annual return of +11.26%, showcasing consistent growth aligned with its investment strategy.
- Life Return: Since inception, the fund has achieved a life return of +9.15%, underscoring its ability to generate value for investors over time.
Risk Metrics
Evaluating risk is as important as assessing returns. Here are the key risk metrics for FZIPX:
- Standard Deviation: Reflects the fund’s volatility. Mid and small-cap funds typically exhibit higher standard deviations compared to large-cap funds.
- Beta: Measures the fund’s sensitivity to market movements. A beta greater than 1 indicates higher volatility relative to the market.
- Sharpe Ratio: Assesses risk-adjusted returns. A higher Sharpe ratio signifies better risk-adjusted performance.
FZIPX’s risk metrics indicate that while the fund offers significant growth potential, it also comes with elevated volatility compared to broader market indices.
Year-to-Date Performance
As of December 6, 2024, FZIPX has achieved a Year-to-Date (YTD) return of +20.33%, showcasing its resilience and strong performance amidst varying market conditions.
Holdings and Diversification
A well-diversified portfolio minimizes risk by spreading investments across various sectors and companies. FZIPX embodies this principle by maintaining a broad range of holdings.
Top Holdings
As of October 31, 2024, FZIPX’s top 10 holdings constitute approximately 3.42% of the total portfolio. Some of the notable holdings include:
| Company Name | Ticker | Percentage of Portfolio |
|---|---|---|
| Carvana Co Class A | CVNA | 0.46% |
| Smurfit Westrock PLC | - | 0.41% |
| Texas Pacific Land Corp | TPL | 0.36% |
| EQT Corporation | EQT | 0.35% |
| Emcor Group Inc | EME | 0.34% |
| Lennox International Inc | LII | 0.32% |
| NRG Energy Inc | NRG | 0.30% |
| Live Nation Entertainment Inc | LYV | 0.30% |
| Expand Energy Corp | EXE | 0.29% |
| Snap-On Incorporated | SNA | 0.28% |
Top Holdings Analysis:
- Sector Representation: The top holdings are diversified across various sectors, including industrials, energy, consumer discretionary, and materials.
- Company Size: While focusing on mid and small-cap companies, the holdings exhibit a mix of growth-oriented and value stocks, balancing potential returns with stability.
Sector Allocation
FZIPX’s sector allocation as of October 31, 2024, is dominated by the Industrials sector, accounting for 19.80% of the portfolio. This heavy concentration underscores the fund’s focus on sectors that drive economic growth and innovation.
Other Key Sectors:
- Energy: Significant exposure to energy companies like EQT and NRG Energy.
- Consumer Discretionary: Investments in companies like Carvana and Live Nation.
- Materials: Holdings in firms such as Smurfit Westrock PLC and Texas Pacific Land Corp.
Geographical Exposure
FZIPX maintains a concentrated geographical focus on the United States, with 99.74% of its assets invested in U.S. companies. This aligns with the fund’s objective to replicate the performance of the U.S. mid and small-cap markets.
Fees and Expenses
One of the most attractive features of FZIPX is its 0.00% expense ratio, both gross and net. This zero-fee structure makes FZIPX highly cost-effective, allowing investors to retain the entirety of their investment returns without deductions for management fees.
Key Points:
- Expense Ratio: 0.00% (both gross and net)
- Minimum Investment: $0.00, making it accessible to all investors.
- Transaction Fees: No transaction fees within Fidelity accounts, enhancing cost efficiency.
Comparison:
When compared to other mid and small-cap funds, FZIPX stands out by eliminating management fees, a significant advantage for long-term investors seeking to maximize compounded returns.
Tax Considerations
Investing in mutual funds like FZIPX involves certain tax implications that investors should be aware of:
- Capital Gains Taxes: Both FZIPX and its underlying index are subject to capital gains taxes when the fund manager sells securities within the fund. Although FZIPX employs passive management to minimize turnover, some capital gains distributions may occur.
- Dividend Taxes: Dividends paid by the fund are taxable in non-retirement accounts unless reinvested through a DRIP.
- Tax Efficiency: While FZIPX’s low turnover rate enhances tax efficiency, investors should consider holding the fund in tax-advantaged accounts such as IRAs or 401(k)s to defer taxes on dividends and capital gains.
Tax-Advantaged Accounts:
Holding FZIPX in accounts like Traditional or Roth IRAs can provide tax-deferred or tax-free growth, respectively, optimizing the fund’s tax efficiency and enhancing overall investment returns.
Dividend Policies and Reinvestment
FZIPX pays dividends on a quarterly basis, providing investors with a steady income stream aligned with the fund’s performance.
Dividend Reinvestment Plan (DRIP)
Investors can opt to participate in a Dividend Reinvestment Plan (DRIP), allowing dividends to be automatically reinvested into additional shares of FZIPX. This strategy facilitates compound growth over time, significantly enhancing long-term returns.
Benefits of DRIP:
- Compounding Growth: Reinvested dividends generate additional returns, accelerating portfolio growth.
- Cost Efficiency: Automated reinvestment eliminates the need for manual transactions, saving time and reducing transaction costs.
- Dollar-Cost Averaging: Regular reinvestment smooths out purchase prices over time, mitigating the impact of market volatility.
Comparing FZIPX to Similar Funds
To understand FZIPX’s position in the market, it’s essential to compare it with similar funds that target mid and small-cap U.S. stocks.
FZIPX vs. FSKAX
FSKAX (Fidelity Total Market Index Fund) is another popular Fidelity fund that offers broader exposure to the entire U.S. stock market, including large-cap stocks.
| Feature | FZIPX | FSKAX |
|---|---|---|
| Expense Ratio | 0.00% | 0.02% |
| Holdings | ~2,066 stocks | ~3,875 stocks |
| Market Coverage | Mid and small-cap U.S. companies | Entire U.S. stock market (including large-cap) |
| Inception Date | September 13, 2018 | August 4, 2003 |
| Minimum Investment | $0.00 | $0.00 |
| Portability | Can be held in any brokerage account | Transferable to other brokerages |
| Dividend Yield | Comparable to total market average | Comparable to total market average |
Key Differences:
- Expense Ratio: FZIPX offers a zero expense ratio, providing a cost advantage over FSKAX’s 0.02%.
- Holdings and Diversification: FSKAX includes a broader range of stocks, encompassing large-cap companies, whereas FZIPX focuses exclusively on mid and small-cap stocks.
- Portability: FSKAX can be transferred to other brokerages, offering greater flexibility for investors who may wish to diversify across platforms. FZIPX, while accessible in any brokerage account, maintains its specific focus on mid and small-cap stocks.
Choosing Between FZIPX and FSKAX:
- Choose FZIPX if you seek targeted exposure to mid and small-cap U.S. companies with zero management fees, aiming for higher growth potential.
- Choose FSKAX if you prefer comprehensive coverage of the entire U.S. stock market, including large-cap stocks, with minimal fees.
FZIPX vs. Vanguard’s VXF
Vanguard’s VXF (Vanguard Extended Market ETF) is a direct competitor to FZIPX, offering similar exposure to mid and small-cap U.S. stocks.
| Feature | FZIPX | VXF (Vanguard Extended Market ETF) |
|---|---|---|
| Expense Ratio | 0.00% | 0.06% |
| Structure | Mutual Fund | Exchange-Traded Fund (ETF) |
| Holdings | ~2,066 stocks | ~3,500 stocks |
| Minimum Investment | $0.00 | Price per share (varies) |
| Trading Flexibility | Priced once daily at NAV | Traded intraday on exchanges |
| Tax Efficiency | Less tax-efficient due to mutual fund structure | More tax-efficient due to ETF structure |
| Dividend Yield | Comparable to total market average | Comparable to total market average |
Key Differences:
- Structure: FZIPX is a mutual fund, which may be easier for certain account types like retirement accounts, whereas VXF is an ETF, offering intraday trading flexibility and potentially better tax efficiency.
- Expense Ratio: FZIPX boasts a 0.00% expense ratio compared to VXF’s 0.06%, making FZIPX more cost-effective.
- Tax Efficiency: ETFs like VXF typically offer better tax efficiency due to their unique creation and redemption process, potentially resulting in fewer taxable events.
Choosing Between FZIPX and VXF:
- Choose FZIPX if you prefer a mutual fund structure with zero expenses and plan to hold the investment long-term within a brokerage account.
- Choose VXF if you value intraday trading flexibility and slightly enhanced tax efficiency, and are comfortable with a minimal expense ratio.
Integrating FZIPX into Your Portfolio
FZIPX can play a pivotal role in various investment strategies, offering targeted exposure to growth-oriented segments of the U.S. stock market.
60/40 Portfolio Example
A classic 60/40 portfolio balances 60% in equities and 40% in bonds, aiming for growth with a moderate risk profile. Here’s how FZIPX can be incorporated:
| Asset | Fund | % |
|---|---|---|
| U.S. Stocks | Fidelity ZERO® Extended Market Index Fund (FZIPX) | 60% |
| Bonds | Fidelity U.S. Bond Index Fund (FXNAX) | 40% |
Advantages:
- Cost Efficiency: With FZIPX’s 0% expense ratio, the portfolio minimizes management fees, enhancing net returns.
- Growth Potential: Exposure to mid and small-cap stocks offers higher growth potential compared to large-cap stocks.
- Simplicity: Easy to manage within Fidelity accounts, streamlining portfolio administration.
Considerations:
- Higher Volatility: Mid and small-cap stocks can be more volatile, potentially leading to larger fluctuations in portfolio value.
- Diversification: While FZIPX provides broad exposure within mid and small-caps, incorporating other asset classes can further enhance diversification.
Growth-Oriented Portfolios
For investors with a higher risk tolerance seeking aggressive growth, FZIPX can be a cornerstone of a growth-oriented portfolio.
Example Allocation:
| Asset | Fund | % |
|---|---|---|
| U.S. Stocks | Fidelity ZERO® Extended Market Index Fund (FZIPX) | 70% |
| International Stocks | Fidelity ZERO® International Index Fund (FZIPX Intl) | 20% |
| Bonds | Fidelity U.S. Bond Index Fund (FXNAX) | 10% |
Advantages:
- Enhanced Growth Potential: Higher allocation to mid and small-cap stocks can drive significant portfolio growth.
- Global Diversification: Incorporating international exposure broadens market reach and reduces reliance on the U.S. economy.
- Cost Efficiency: Zero expense ratios across Fidelity’s ZERO funds minimize drag on returns.
Considerations:
- Increased Risk: Higher equity exposure, especially in mid and small-caps, elevates portfolio volatility.
- Market Concentration: Focus on U.S. markets may limit exposure to emerging opportunities in other regions.
Backtesting Results
Historical performance analysis indicates that portfolios incorporating FZIPX have the potential for strong long-term growth, especially when compounded over multiple decades. The zero expense ratio significantly benefits long-term returns, making FZIPX an attractive option for investors committed to a buy-and-hold strategy.
Key Findings:
- Compounded Returns: Over extended periods, the absence of management fees in FZIPX results in higher compounded returns compared to similar funds with minimal fees.
- Risk-Adjusted Performance: While FZIPX introduces higher volatility, the overall risk-adjusted returns remain favorable due to its growth-oriented asset allocation.
Suitability for Different Investor Profiles
FZIPX caters to a diverse range of investors, each with unique financial goals and risk appetites.
Ideal For:
- Cost-Conscious Investors: Those prioritizing minimal fees to maximize net returns.
- Growth-Oriented Investors: Individuals seeking higher growth potential through mid and small-cap exposure.
- Long-Term Investors: Investors with a long investment horizon, comfortable with market volatility for the sake of potential higher returns.
- Fidelity Account Holders: Investors who prefer to manage their portfolios within Fidelity’s ecosystem for seamless integration and management.
Considerations:
- Higher Volatility Tolerance: Investors must be comfortable with the inherent volatility associated with mid and small-cap stocks.
- Focused Market Exposure: FZIPX is concentrated on mid and small-cap U.S. stocks, which may not provide the same level of diversification as broader market funds.
Fund Manager and Management
FZIPX is managed by Geode Capital Management, a reputable firm known for its expertise in index fund management. Geode Capital’s experience ensures that FZIPX effectively tracks its benchmark index, maintaining alignment with the fund’s investment objectives.
Manager Tenure: Geode Capital has managed FZIPX since its inception on September 13, 2018, demonstrating stability and consistent management practices.
Other Managed Funds by Geode Capital:
- Fidelity ZERO® Total Market Index Fund (FZIPX)
- Fidelity NASDAQ Composite Index® Fund
- Fidelity Emerging Markets Index Fund
- Fidelity Global ex U.S. Index Fund
- Fidelity Mid Cap Index Fund
- Fidelity Real Estate Index Fund
- Fidelity Small Cap Index Fund
Geode Capital’s extensive portfolio management experience underpins FZIPX’s ability to deliver consistent performance aligned with its investment strategy.
Conclusion
Fidelity ZERO® Extended Market Index Fund (FZIPX) emerges as a compelling choice for investors seeking cost-effective exposure to mid and small-cap U.S. stocks. With a 0.00% expense ratio, broad diversification across various sectors, and a focus on growth-oriented companies, FZIPX aligns well with long-term investment strategies aimed at maximizing returns while minimizing costs.
Key Takeaways:
- Zero Expense Ratio: Maximizes net returns by eliminating management fees.
- Targeted Exposure: Focuses on mid and small-cap U.S. stocks, offering higher growth potential.
- Diversification: Broad holdings across multiple sectors mitigate individual stock risk.
- Flexibility: Can be seamlessly integrated into various portfolio strategies, including the classic 60/40 split or more aggressive growth portfolios.
Final Recommendation:
For investors committed to a long-term growth strategy and seeking to minimize investment costs, FZIPX is an excellent addition to a diversified portfolio. Its zero expense ratio, coupled with robust exposure to mid and small-cap stocks, positions it as a valuable tool in building sustained wealth.
Frequently Asked Questions (FAQ)
Q: What is FZIPX?
FZIPX stands for Fidelity ZERO® Extended Market Index Fund. It aims to provide investment results that correspond to the total return of mid- to small-capitalization U.S. companies, with a 0% expense ratio.
Q: What are the benefits of investing in FZIPX?
FZIPX offers broad diversification across mid and small-cap U.S. stocks with zero management fees, making it a cost-effective option for investors seeking exposure to these market segments.
Q: How does FZIPX compare to FSKAX?
FZIPX focuses specifically on mid and small-cap stocks with zero expenses, while FSKAX covers the entire U.S. market including large-cap stocks with a minimal expense ratio of 0.02%. Choose FZIPX if you prefer targeting mid/small-caps and minimizing costs.
Q: Does FZIPX pay dividends?
Yes, FZIPX pays dividends quarterly. Investors can opt to reinvest these dividends through a Dividend Reinvestment Plan (DRIP) to compound their investment over time.
Q: Is FZIPX suitable for long-term investment?
Absolutely. FZIPX is designed for long-term growth by investing in mid and small-cap U.S. companies, which can offer higher growth potential compared to large-cap stocks, albeit with increased volatility.
Q: Can FZIPX be held in a retirement account?
Yes, FZIPX can be held in various retirement accounts such as IRAs and 401(k)s, allowing investors to benefit from tax-advantaged growth.
Q: What are the top holdings in FZIPX?
As of October 31, 2024, some of FZIPX’s top holdings include Carvana Co Class A (CVNA), Smurfit Westrock PLC, Texas Pacific Land Corp (TPL), EQT Corporation (EQT), and Emcor Group Inc (EME), among others.
Q: What is the expense ratio of FZIPX?
FZIPX has a 0.00% expense ratio, both gross and net, making it highly cost-effective for investors.
Q: How diversified is FZIPX?
FZIPX holds approximately 2,066 stocks across various sectors, providing broad diversification within the mid and small-cap segments of the U.S. stock market.
Q: What are the risks associated with FZIPX?
FZIPX is subject to market risk, particularly volatility associated with mid and small-cap stocks. Economic downturns, sector-specific challenges, and liquidity issues can impact the fund’s performance.
Q: How has FZIPX performed historically?
Since its inception in September 2018, FZIPX has delivered strong performance, with an average annual return of +11.26% over 5 years and a life return of +9.15%. The fund has shown resilience and growth potential aligned with its investment strategy.
Q: How can I invest in FZIPX?
FZIPX can be purchased through Fidelity brokerage accounts with no minimum investment required. Investors can buy and sell shares directly on Fidelity’s platform, benefiting from zero transaction fees within Fidelity accounts.
Q: Does FZIPX offer automatic dividend reinvestment?
Yes, FZIPX offers an optional Dividend Reinvestment Plan (DRIP), allowing dividends to be automatically reinvested into the fund, thereby facilitating compound growth over time.
Q: What is the turnover rate of FZIPX?
As of April 30, 2024, FZIPX has a turnover rate of 8.00%, indicating the frequency with which the fund’s holdings are bought and sold.
Q: How large is the FZIPX fund?
As of November 30, 2024, FZIPX has portfolio net assets totaling approximately $1,927.17 million, reflecting its growing popularity among investors.
Q: Can I transfer FZIPX to another brokerage?
Yes, FZIPX can be transferred to other brokerage accounts, offering flexibility for investors who wish to consolidate or diversify their investment holdings across different platforms.
Q: What sectors does FZIPX invest in?
FZIPX invests across various sectors, with significant exposure to Industrials (19.80%), Energy, Consumer Discretionary, and Materials, among others.
Q: What is the NAV of FZIPX?
As of December 6, 2024, the Net Asset Value (NAV) of FZIPX is $14.74, reflecting the fund’s per-share value based on its holdings.
Q: How does FZIPX manage liquidity?
FZIPX maintains liquidity through a diversified portfolio of mid and small-cap stocks, ensuring sufficient trading volumes to facilitate buy and sell transactions without significant price impacts.
Q: What is the primary objective of FZIPX?
The primary objective of FZIPX is to provide investment results that correspond to the total return of stocks of mid- to small-capitalization U.S. companies, aiming for long-term growth and diversification.
Q: Who manages FZIPX?
FZIPX is managed by Geode Capital Management, a reputable firm with extensive experience in managing index funds and ensuring alignment with the fund’s investment objectives.
Q: What is the minimum investment required for FZIPX?
FZIPX requires no minimum investment, making it accessible to all investors regardless of their account size.
Q: How often does FZIPX distribute dividends?
FZIPX distributes dividends on a quarterly basis, providing investors with regular income aligned with the fund’s performance.
Q: What are the additional features of FZIPX?
FZIPX offers features such as zero transaction fees within Fidelity accounts, the ability to hold the fund in various retirement accounts, and no minimum investment requirement, enhancing its appeal to a wide range of investors.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing involves risks, including the possible loss of principal. Always conduct your own research before making investment decisions.