Best Index Funds and ETFs at Fidelity

iShares Cup 2009 - Amsterdam - 005

Fidelity previously offered 30 iShares ETFs commission-free. Recently Fidelity and iShares replaced 10 out of the 30 and added another 35, expanding the list of commission-free iShares ETFs at Fidelity to 65. Are any of the new ones good, especially for a buy-and-hold investor?

What are the best index funds and ETFs if one invests at Fidelity? I have accounts at Fidelity. I will give my choices.

The complete list of the 65 commission-free ETFs is here. I see a handful of good ones. Overall, the list isn’t as good as the 101 commission-free ETFs at TD Ameritrade, which also include 32 Vanguard ETFs. I can still come up with a pretty good portfolio when I mix and match some of the iShares ETFs with Fidelity’s Spartan index funds and pay $8 a trade to get Vanguard ETFs when necessary.

US Broad Market

Fidelity already has an open-end fund Spartan Total Market Index Fund (FSTVX) with an expense ratio at only 0.07%. The minimum investment for the Advantage class was lowered from $100k to $10k earlier this year. This fund will work just fine. I don’t need to use an ETF.

US Small Cap

If I want to overweight US small cap or small cap value, Fidelity offers iShares S&P 600 ETF (IJR) and iShares S&P 600 Value ETF (IJS) commission-free. These are new on the list. They replaced ETFs based on Russell 2000 Indexes. I like these better than the Russell ones, although for large purchases I would pay $8 a trade and get Vanguard’s small cap or small cap value ETF (VB or VBR).

International Broad Market

iShares Core MSCI Total International Stock ETF (IXUS) is new on the commission-free list. IXUS includes emerging markets and international small caps. It’s a well-rounded fund, except it’s too new. Asset size and trading volumes are very low. Fidelity’s open-end fund Spartan Global ex U.S. Index Fund (FSGDX) includes both developed and emerging markets but it does not include international small caps.

For a large one-time purchase, I would pay $8 and get Vanguard Total International Stock ETF (VXUS). For smaller regular purchases, I would buy the open-end fund FSGDX.

Emerging Markets

The broad market funds above already include emerging markets. If I want to overweight emerging markets, Fidelity offers iShares Core MSCI Emerging Markets ETF (IEMG) commission-free. This new emerging markets ETF includes small caps. It’s more diversified than the Vanguard Emerging Markets ETF (VWO) and Fidelity’s open-end fund Spartan Emerging Markets Index Fund (FPMAX). IEMG already got a good start, growing to over $700 million in assets in short 5 months. It’s a good one.

International Small Cap

The iShares MSCI EAFE Small-Cap Index ETF (SCZ) on the commission-free list doesn’t cover Canada or emerging markets. If I want to overweight international small cap, I would pay $8 and buy Vanguard FTSE All-World ex-US Small-Cap ETF (VSS).

Fixed Income

I don’t like fixed income ETFs. For fixed income I would just buy I Bonds, CDs, and Vanguard muni funds.

***

For broad diversification with the least number of equity funds, just two will do at Fidelity: Spartan Total Market Index Fund (ticker FSTVX) for US stocks and Spartan Global ex U.S. Index Fund (FSGDX) for international stocks. Replace FSGDX with Vanguard Total International Stock ETF (VXUS) for including international small caps. If I want to spice it up a little more with higher risk, I would add VBR for more US small cap value, IEMG for more emerging markets, and VSS for more international small caps. That’s maximum of 5 funds. Only one of them is an iShares ETF.

[Photo credit: Flickr user René Slaats]

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Comments

  1. Dan says

    Useful list. I would add Fidelity’s new-ish Spartan TIPS fund: https://fundresearch.fidelity.com/mutual-funds/summary/316146125

    For a minimum investment of only $10k, you can get TIPS at an ER of 0.10%, compared to Vanguard’s VAIPX fund which requires $50k to get Admiral shares at 0.11%.

    In the case, Fidelity’s offering is an index fund while Vanguard’s is not, but their duration and composition are very very similar.

  2. SH says

    What is the catch? It is hard to believe that this is done out the goodness from the resident bleeding hearts in Wall Street.

  3. Dan says

    @SH, I think BlackRock and Fidelity rightly fear losing market share to investors who focus on passive indexing approaches. Charles Schwab and TD Ameritrade–and of course Vanguard–currently have better low-cost offerings in this area, so BlackRock and Fidelity are teaming up to compete.

    In the short run, all these brokerages chasing the low-cost investors’ business is good for the investors, but I’m not sure about the long run. In the long run, they won’t make as much money as they expect because–surprise!–investors are going for a low-cost approach and don’t want to trade often.

    The managers of all these index funds could raise the ERs and effectively lock in many long-term investors who don’t want to pay capital gains to move their money elsewhere. For this reason, I won’t hold anything other than Vanguard funds in my taxable accounts, because I consider the interests of the investors to be misaligned with the interests of the fund managers for all other fund families.

  4. says

    Investors are more cost conscious. Instead of selling them load funds, their advisors can put together a portfolio of ETFs and still charge the investors 1-2% for that effort. Advisors get to preserve their revenue. ETF providers get new revenues from the retail investors. Brokerage firms get compensated from ETF providers. They can also upsell the customers other things. Load funds lose. Customers win.

  5. Edmund says

    Good post, Harry. I read your blog frequently and really enjoy it.

    I invest at Fidelity as well, and have one correction and one question for you. IJS is not new on the list – it’s been there as part of the 30 commission free ETFs, I have been buying it myself.

    The question is what would you buy for fixed income in Fidelity TIRA account? I have been buying BND for large purchases, and AGG for small ones. Would you continue with this strategy, or would you buy FBIDX (total bond index fund) instead?

  6. Edmund says

    Thanks for your suggestion, Harry. I run 80/20 stock/bond index fund portfolio in accumulation phase. It’s all in TIRA or 401k, both at Fidelity. I have no other accounts. What do I buy for my fixed income portion of a portfolio, if not total bond fund?

  7. says

    Not much you can do in the 401k but you can transfer part of the IRA out to a bank or credit union to buy CDs. Same yield as a bond fund but with no credit risk and no interest rate risk.

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