FNCMX vs ONEQ
The Fidelity Nasdaq Composite Index Fund (FNCMX) and the Fidelity Nasdaq Composite ETF (ONEQ) are two of the largest index funds that track the Nasdaq Composite. Both FNCMX and ONEQ track the well-known Nasdaq Composite index. The funds look very similar and many investors ask what is the difference between FNCMX and ONEQ? The below post will compare FNCMX vs ONEQ.
The Short Answer
The main difference is that FNCMX is a mutual fund and ONEQ is an ETF; however investors should consider several other factors when deciding which is best.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Long Answer
Historical Performance: FNCMX vs ONEQ
Both ONEQ and FNCMX were launched back in September 2003. Since their common inception date, the two funds have performed nearly identically, with a difference of just .09% annually! The cumulative performance difference between these two funds has only been about 12% (over a 20+ year timeframe)! Thus, from a performance perspective, I would consider these two funds interchangeable.
Differences between FNCMX vs ONEQ
Both FNCMX and ONEQ track the Nasdaq Composite, so I will not delve into differences in geographic exposures, sector weights, or market cap coverage. For all intents and purposes, the portfolios are identical.
Factors to Consider
Transaction Costs
ETFs are free to trade at many brokers and custodians, including Fidelity. However, many brokers and custodians still charge commissions and/or transaction fees to buy/sell mutual funds. To my knowledge, Fidelity does not participate in the pay-to-play arrangements (with their competitor custodians) that would allow their mutual funds to trade for free on many platforms. So if an investor account is at Fidelity, it is generally free to trade FNCMX or ONEQ. However, only ONEQ is free to trade in many non-Fidelity accounts.
There is a bid-ask spread when trading ETFs, but this spread is typically less than .07% for ONEQ and individual investor trades will not generally be large enough to “move” the market. In the case of ONEQ, individual investors should not have a problem trading.
Tax Efficiency & Capital Gain Distributions
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). This is true of ONEQ and FNCMX, as ONEQ does not make capital gains distributions and FNCMX frequently does.
Tax Loss Harvesting
My personal preference is to keep a portfolio entirely mutual funds or entirely ETFs, due to the mechanics of settlement during tax loss harvesting. If an ETF has declined in value and an investor sells it, the trade and cash proceeds will not settle for two business days (T+2). That investor may want to “replace” the sold ETF immediately and attempt to buy another ETF or mutual fund simultaneously.
However, mutual funds settle on T+1 basis, so cash for the mutual purchase would be due in one business day (which is one day earlier than the cash from the ETF sale is received). This can obviously cause problems and (even though this issue can be addressed with careful planning) I find it easier to keep accounts invested in similar vehicles. In this case, if a portfolio is all mutual funds, I might lean more towards FNCMX. If all ETFs, I might lean more towards ONEQ.
On this topic, investors may want to avoid using these two funds as tax loss harvesting substitutes for one another since they could be considered “substantially identical.”
Tradability
FNCMX does not have a stated minimum for purchases, although some brokerages (especially competitors of Fidelity) impose minimums. The minimum purchase size for ONEQ is typically one share, although fractional shares are becoming more common. Investors can trade ETFs intraday, as well as in the pre-market and after-hours trading sessions. Investors can only buy/sell mutual funds once per day. This is not necessarily a major factor for long-term investors however.
Final Thoughts: FNCMX vs ONEQ
Both FNCMX and ONEQ are large, Nasdaq Composite index funds sponsored and managed by Fidelity. Performance has been nearly identical. I view FNCMX and ONEQ as essentially interchangeable and would not spend too much energy trying to decide which one is “better.” If I was investing in a taxable account, I would probably opt for ONEQ due to the tax efficiency edge.
However, there are some situations that may call for one fund versus another. For instance, many custodians offer free ETF trades, but charge trading fees or redemption fees for mutual funds. So I might select FNCMX or ONEQ solely based on where my account is held or whether I’m investing taxable vs retirement dollars. Despite these considerations, these two funds are very similar for all intents and purposes.
