FZROX vs SWPPX

The Schwab S&P 500 Index mutual fund (SWPPX) and the Fidelity ZERO Total Market Index fund (FZROX) are two of the largest mutual funds in existence. SWPPX and FZROX are the core of many investor portfolios. Many investors compare SWPPX vs FZROX in order to decide which should be the foundation of their portfolio.

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 Short Answer

There are two main differences between SWPPX and FZROX. Firstly, and perhaps most importantly, FZROX can only be bought and owned in Fidelity accounts. Secondly, SWPPX is a large- and mid-cap fund, while FZROX is a total market fund. Despite these differences, the total return between these two funds is pretty close.

The Long Answer

Historical Performance: SWPPX vs FZROX

SWPPX was launched back in 1997, while FZROX was launched on August 2, 2018. Since then, SWPPX has outperformed by about a .7% annually. This is not a huge performance differential, but it does compound over time. The cumulative difference between the two funds since common inception is approximately 4%.

Of course, the outperformance of SWPPX is reflective of large-cap stocks’ dominance over the past five years. If mid-caps and/or small-caps lead, then I suspect FZROX would outperform.

Differences between SWPPX vs FZROX

The biggest difference between SWPPX and FZROX is the market cap exposure of the funds. SWPPX tracks the S&P 500 index which includes mostly large-caps and some mid-caps, while FZROX covers much more of the market by including more mid-caps and small-caps.

Geographic Exposure

Both SWPPX and FZROX hold essentially 100% stocks, so I will not dig into country exposures or market classification here. For intents and purposes, the two funds have identical exposures.

Market Cap Exposure

SWPPX focuses on the S&P 500 index and so it mostly holds large-caps with a bit of mid-cap exposure. FZROX tracks the broader Dow Jones U.S. Total Stock Market Index and so it owns many more mid-caps and small-caps (as of 11/30/2022). In other words, SWPPX is a large-cap vehicle, while FZROX is a total market vehicle. That being said, due to market cap weighting, both funds are overwhelmingly influenced by the large-cap holdings.

SWPPXFZROX
Large-Cap83%73%
Mid-Cap16%19%
Small-Cap0%9%
Source: ThoughtfulFinance.com, Morningstar

Sector Weights

The sector weights between SWPPX and FZROX are nearly identical. The weights are within 1% for every single sector.

SWPPXFZROX
Basic Materials2.46%2.67%
Consumer Cyclical9.56%10.47%
Financial Services13.89%14.01%
Real Estate2.81%3.46%
Communication Services7.28%6.90%
Energy5.23%5.14%
Industrials9.06%9.59%
Technology23.02%23.15%
Consumer Defensive7.61%6.79%
Healthcare15.90%14.95%
Utilities3.18%2.87%
Source: ThoughtfulFinance.com, Morningstar (data as of 12/31/22 for SWPPX and 11/30/22 for FZROX)

Factors to Consider

Tradability

In my view, the most important factor to consider when evaluating SWPPX vs FZROX is the fact that FZROX cannot be bought or owned outside of Fidelity. Personally, this is a non-starter for me as there are reasons to transfer assets to other custodians, such as transferring one’s accounts or making a donation. Some investors may not value flexibility as much, but they should be aware of this limitation.

Transaction Costs

Many brokers and custodians still charge commissions and/or transaction fees to buy/sell mutual funds. To my knowledge, neither Schwab nor Fidelity participates 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 FZROX; likewise, accounts at Schwab can generally trade SWPPX for free. SWPPX will likely incur trading fees anywhere outside of Schwab, while FZROX cannot be traded at all outside of Fidelity.

It is worth noting that neither fund has a minimum for initial or additional investments. That being said, investors looking for free trades may want to consider an a total market ETF or large-cap ETF, rather than FZROX or SWPPX.

Expenses

FZROX grabbed headlines when Fidelity announced it, due to the 0% expense ratio. While zero expenses is great, it is only .02% less than SWPPX. So even though the difference in expenses is infinite in relative terms, its only two basis points. At a certain level (such as this one), differences in expense ratios do not matter.

Tax Efficiency & Capital Gain Distributions

Both funds have made capital gains distributions in the past and will likely make them in the future. It is not possible to say which one will be more tax-efficient in the future. As index funds, the tax drag on both funds is very low. However, tax-sensitive taxable investors may want to consider using an ETF in lieu of either of these funds.

Final Thoughts: SWPPX vs FZROX

Both SWPPX and FZROX are large, core funds sponsored and managed by two of the largest asset managers in the world (Fidelity and Schwab respectively). Beyond market cap exposures, the funds appear and act very similar. Long-term performance has been nearly identical. I view these two funds as essentially interchangeable and would not spend too much energy splitting hairs to decide which one is “better.”

Should I invest in FZROX or SWPPX?

Due to the reasons outlined above, I believe SWPPX is a better choice than FZROX for most investors’ situations, although investors may want to look at similar ETFs too.

Investors should not consider FZROX at all unless their account is at Fidelity. If my accounts were at Fidelity, I might consider FZROX in a tax-exempt or tax-deferred account. However, I would never buy FZROX in a taxable account due to the inability to transfer the assets (without realizing a potential gain) out of Fidelity if I wanted to move my accounts, donate the shares, etc.

Posted by Matt

Matt is an investor and investment adviser. He is a CFA charterholder and a CAIA charterholder. His writing on this site is purely educational; he will not make recommendations on this site since he does not know individual readers' situations.