Unfortunately I have not been taking full advantage of my Fidelity account. Although I’ve repeatedly combed through all the varying types of mutual funds in my attempt to find the best performing, lowest cost funds for my 401k, IRA and non-retirement accounts I overlooked one very important investment option. I excluded looking at Fidelity’s ETF’s options due to the trading costs and assumed higher expenses. This has turned out to be a highly regrettable oversight.
Fidelity offers over 90 ETFs….wait for it…commission free! As long as you hold the ETF for a minimum of 30 days you pay no transaction costs (otherwise you pay the $4.95 buy/sell costs). Not that I want to be an active trader, especially when it comes to my 401K, but ETFs offer flexibility far more flexibility than mutual funds.
Since ETFs trade like stocks, they offer open, close, high and low price quotes, a structure I can build candle stick charts from for a clearer picture of the ETF’s performance and trend. I can also buy and sell an ETF during the trading day at an exact price as opposed to a mutual fund which can only be bought and sold an at unknown closing price. Now the question of the day is if any of the Fidelity commission-free ETF’s can replace my current mutual funds? Do the ETFs have equivalent performance and expenses?
Large Caps: FUSVX vs IVV
My 401k has a significant position in FUSVX (large cap stock index fund), iShares has an equivalent in IVV. The expense ratio for FUSVX is 0.045% and for IVV it’s actually lower at 0.040% – a pleasant surprise. Next is a test of the performance, you can see below via a 5 year chart the performance is nearly identical (with a slight edge to IVV):
Mid Caps: FSCKX vs. IJH
Both Fidelity’s Mid Cap Index Fund FSCKX and iShares IJH have the same expense ratio: 0.07%. Below is the 5 year chart:
These two do track each other, but at least when comparing the 5 year performance IJH has excelled far more over the past year or so.
Small Caps: FSSVX vx IJR
Fidelity’s FSSVX has a lower expense ratio (0.07%) than iShares IJR (0.09%). Below is the 5 year performance:
Again, you can see that the two track one another, but over the 5 year period the ETF has dramatically superior returns.
Annual Comparison
I only went back 5 years in the above analysis because some of the investment options have a limited history. However a pattern has emerged in that the ETF returns have been beating out the mutual fund’s. One needs to be extremely careful in drawing conclusions just from the above comparisons. A good month, quarter or year could skew the ETF and make it appear it has a better overall performance than it really does relative to the comparable mutual funds. It would be best to also compare the annual returns between each option for each category:
In table you can see that IVV has beat FUSVX six out of the seven periods examined making the iShares ETF the clear winner. IVV has a lower expense ratio and a better returns, what more can be said? The small caps comparison yields similar results, iShares again beats Fidelity five out of six periods – and the beats are pretty significant. The only off year for IJR is 2017 YTD, where it is currently losing out to FSSVX by two points. For mid caps it is even, Fidelity’s FSCKX and IJH each split three periods. Except for 2015, neither of the mid cap options greatly outperform the other.
Next Steps
I’m replacing the large cap, mid cap and small cap Fidelity Mutual Funds in favor of these iShares ETFs. The expense ratios are about the same and the returns favor the iShares ETFs. With the additional trading flexibility and charting options this choice is an easy one to make.
