FZROX: The Zero-Fee Revolution
How Fidelity's Total Market Index Fund Outperformed the S&P 500 by 41% Since 2019
Since its launch in 2018, FZROX has become one of Fidelity’s flagship funds, amassing $24.58 billion in assets under management (AUM) as of May 2025. What’s the hype? Let’s explore the surprising facts about this zero-fee fund.
Fees? ZERO.
FZROX is part of Fidelity’s “ZERO” family, introduced in 2018 as the first mutual funds with a 0% expense ratio. This means you pay no management fees, a stark contrast to even the lowest-cost competitors like Vanguard’s VTSAX (0.04%). The “ZERO” family includes four funds, each targeting a specific market segment. Learn more at Fidelity’s official page.
| Fund | Tracks | Purpose |
|---|---|---|
| FZROX | U.S. Total Market Index | Broad exposure to the U.S. equity market. |
| FNILX | U.S. Large Cap Index | Focused exposure to large-cap U.S. stocks. |
| FZIPX | U.S. Extended Market Index | Complements large-cap funds with mid- and small-cap stocks. |
| FZILX | International Stocks Index | Diversification through international equities. |
Fidelity’s zero-fee model seems to embody the vision of Vanguard’s founder, John Bogle, who championed low costs for long-term success. With no fees, the compounding effect works solely in your favor!
Less is More?
FZROX tracks the Fidelity U.S. Total Investable Market Index, a proprietary benchmark designed to reflect the U.S. equity market. Unlike funds tracking standard indices like the S&P 500, FZROX uses statistical sampling, holding approximately 2,600 stocks compared to Vanguard’s VTI (3,854). This excludes micro-cap companies (market cap below $75 million), slightly tilting toward larger-cap stocks but reducing trading costs (S&P Dow Jones Indices).
Surprising Fact: By using a custom index, Fidelity avoids licensing fees, a key reason for the zero expense ratio. This proprietary approach may catch investors off guard, as it differs from widely recognized benchmarks.
Performance
Since its launch on August 2, 2018, FZROX has delivered strong returns. From 2019 to 2024, it achieved a cumulative return of approximately 151.7%, outperforming the S&P 500’s 110% over a similar period. Annual returns include 31.15% (2019), 20.50% (2020), 26.01% (2021), -19.19% (2022), 26.21% (2023), and 23.94% (2024) (Yahoo Finance). Its low turnover (2%) ensures minimal tracking error, closely aligning with its index (MutualFunds.com).
Surprising Operational Strategies
Loss Leader Strategy
Fidelity likely uses FZROX as a “loss leader” to attract investors to its platform, where they can be cross-sold other services like advisory or actively managed funds. This strategy, common in the industry, generates revenue to offset the lack of fees, a fact that may surprise investors expecting a purely altruistic motive (Financial Tortoise).
Securities Lending
FZROX generates income by lending securities to institutions, earning 1–5 basis points annually. This revenue covers operational costs, supporting the zero-fee model. While common, this practice carries minor risks, like counterparty default, which are mitigated by collateral requirements (SEC Filing).
Rapid Asset Growth
FZROX’s AUM has soared to $24.58 billion in under seven years, reflecting its appeal to cost-conscious investors. This growth outpaces many peers, highlighting the market’s enthusiasm for zero-fee investing (Yahoo Finance).
Surprising Operational Strategies
Loss Leader Strategy
Fidelity likely uses FZROX as a “loss leader” to attract investors to its platform, where they can be cross-sold services like advisory or actively managed funds. This strategy generates revenue to offset the lack of fees, a fact that may surprise investors expecting a purely altruistic motive (Financial Tortoise).
Securities Lending
FZROX generates income by lending securities to institutions, earning 1–5 basis points annually. This revenue covers operational costs, supporting the zero-fee model. While common, this practice carries minor risks, like counterparty default, mitigated by collateral requirements (SEC Filing).
Rapid Asset Growth
FZROX’s AUM has soared to $24.58 billion in under seven years, reflecting its appeal to cost-conscious investors. This growth outpaces many peers, highlighting the market’s enthusiasm for zero-fee investing (Yahoo Finance).
Considerations (What the Community Says)
Aggregated from investing communities like Reddit and Bogleheads, here are key considerations reflecting real investor sentiment:
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Fidelity’s Marketing Strategy: Users note that ZERO funds are a marketing tool to keep assets within Fidelity’s ecosystem. One Redditor commented, “It’s a great deal, but Fidelity’s betting you’ll buy their other products” (Reddit Bogleheads).
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Portability Limitations: Investors highlight that FZROX cannot be transferred to other brokerages without selling, risking taxable events. A Bogleheads user warned, “If you ever leave Fidelity, you’ll have to sell and rebuy, which could mean a big tax hit”.
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Tax-Advantaged Accounts Preferred: Community members recommend holding FZROX in IRAs or 401(k)s due to potential capital gains distributions (e.g., $0.028 per share in 2021). A Redditor advised, “Perfect for a Roth IRA, but I’d avoid it in taxable accounts” (Reddit Bogleheads).
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Tax Efficiency Concerns: As a mutual fund, FZROX may distribute capital gains, unlike ETFs. A Bogleheads user noted, “VTI hasn’t had capital gains in years, but FZROX might surprise you with a tax bill”.
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Proprietary Index Risks: Some investors question the custom index’s long-term performance. A Reddit user asked, “It’s doing well now, but what happens if Fidelity’s index lags broader markets?” (Reddit Bogleheads).
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Fewer Holdings: With 2,600 stocks versus VTSAX’s 3,854, FZROX has less small-cap exposure. A Bogleheads member said, “The missing small-caps are negligible, but I prefer VTSAX for completeness”.
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Dividend Frequency: FZROX’s annual dividends (1.22% yield) are less frequent than some prefer. A Redditor remarked, “Fine for growth, but don’t expect regular cash flow” (Reddit Personal Finance).
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Long-Term Viability: While Fidelity’s reputation earns trust, some worry about the zero-fee model’s sustainability. A Bogleheads user speculated, “Fidelity’s solid, but could they add fees later?”.
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Alternatives: For taxable accounts, users suggest ETFs like VTI or ITOT for tax efficiency and portability, or Fidelity’s FSKAX for broader holdings. A Redditor shared, “I use VTI in taxable and FZROX in my IRA to balance flexibility and cost” (Reddit Bogleheads).
Sector Allocation
FZROX’s sector allocation aligns with the U.S. market, with Technology (29.75%), Financial Services (14.53%), and Healthcare (11.30%) leading. This is comparable to VTSAX, ensuring broad market representation.
| Sector | FZROX (%) | VTSAX (%) |
|---|---|---|
| Technology | 29.75 | ~30 |
| Financial Services | 14.(chr)53 | ~14 |
| Healthcare | 11.30 | ~12 |
| Consumer Cyclical | 10.38 | ~10 |
| Communication Services | 8.65 | ~9 |
Conclusion
FZROX’s zero fees, strong performance (151.7% from 2019–2024), and rapid growth make it a compelling choice for cost-conscious investors, particularly in tax-advantaged accounts. Its proprietary index, securities lending, and loss leader strategy reveal Fidelity’s innovative approach to cost management. However, portability limits and tax inefficiencies in taxable accounts warrant caution. For flexibility, consider ETFs like VTI or FSKAX. FZROX remains a bold step in the “zero-fee revolution,” challenging competitors like Vanguard to respond!
Ultimately, FZROX is a bold step in the “zero fee revolution” and a practical realization of John Bogle’s low-cost investment philosophy. Vanguard, your move!
FAQ
What is FZROX? +
FZROX is the Fidelity® ZERO Total Market Index Fund, a mutual fund that seeks to provide investment results corresponding to the total return of a broad range of U.S. stocks.
What does FZROX track? +
FZROX tracks the Fidelity U.S. Total Market Index, providing exposure to the entire investable U.S. equity market.
Is FZROX an ETF? +
No, FZROX is a mutual fund offered by Fidelity, not an ETF.
What type of stock is FZROX? +
FZROX is a mutual fund representing the total U.S. stock market, including large-cap, mid-cap, and small-cap stocks.
Is FZROX passively managed? +
Yes, FZROX is passively managed and follows the Fidelity U.S. Total Market Index.
Is FZROX US only? +
Yes, FZROX focuses exclusively on U.S. companies and does not include international stocks.
What is the minimum investment for FZROX? +
There is no minimum investment requirement when purchasing FZROX directly through Fidelity.
How to buy FZROX? +
You can buy FZROX through a Fidelity brokerage account. If you don’t have one, you can open an account online. Some other brokerages may also offer it with certain fees or restrictions.
Where can I buy FZROX? +
The most straightforward option is to buy FZROX directly from Fidelity’s website or through a Fidelity brokerage account.
How does FZROX make money? +
FZROX generates returns from its underlying stock holdings. As these companies grow in value and pay dividends, the fund passes this growth and income on to investors.
Why is FZROX so cheap? +
FZROX has no expense ratio. Fidelity covers the fund’s operating costs, allowing investors to benefit from broad market exposure without annual fees.
Is FZROX a good fund? +
Yes, FZROX is often considered a good choice for investors seeking broad U.S. market exposure at zero cost, making it attractive for long-term growth.
Does FZROX follow the S&P 500? +
No, it follows the Fidelity U.S. Total Market Index, which is broader than the S&P 500.
What is the difference between FZROX and FSKAX? +
Both are Fidelity total market funds. FZROX has a zero expense ratio, while FSKAX has a small expense ratio. Both track broad U.S. market indices, but FZROX is part of Fidelity’s zero-fee lineup.
Which is better, FZROX or FNILX? +
Both are excellent zero-fee funds. FZROX provides total market exposure, while FNILX focuses on large-cap stocks. The choice depends on your investment goals.
Is FZROX taxable? +
If held in a taxable brokerage account, any dividends and capital gains distributions are subject to taxation.
How often does FZROX pay dividends? +
FZROX pays dividends quarterly, offering a consistent income stream.
Is FZROX a dividend stock? +
FZROX is not considered a traditional dividend stock, but it does distribute dividends quarterly from the income generated by its holdings.
How much of FZROX is large-cap? +
A significant portion of FZROX’s portfolio is invested in large-cap stocks, as they make up the majority of the U.S. market.
What is the future of FZROX? +
FZROX’s performance is tied to the overall U.S. stock market. As a total market fund, its returns reflect the economy’s growth and fluctuations.
How much to invest in FZROX? +
The amount you invest depends on your financial goals, risk tolerance, and overall strategy. FZROX is suitable for both small and large investments.
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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.
