Active vs. Index
A Fee & Performance Review of Fidelity Strategic Advisers Funds Against Low-Cost Alternatives
The Core Challenge: The Fee Hurdle
Active funds have a permanent cost disadvantage. The manager must consistently outperform the index by at least the “fee hurdle” just to match the performance of the cheaper alternative.
FCTDX vs FSKAX
U.S. Total Stock
+0.265%
Annual Fee Hurdle
FUSIX vs FSGGX
International Stock
+0.26%
Annual Fee Hurdle
FGOMX vs FPADX
Emerging Markets
+0.245%
Annual Fee Hurdle
FIWGX vs FXNAX
Core Bond
+0.135%
Annual Fee Hurdle
Interactive Fund Comparison
Conclusion & Recommendations
The Power of Low-Cost Indexing
1. Cost is King: The high expense ratios (≈0.135% to 0.265% higher) are a massive, guaranteed headwind for the active funds. This cost difference compounds over time, significantly impacting long-term growth.
2. In Efficient Markets (U.S. & International): The index funds (FSKAX, FSGGX) offer compelling, market-driven performance with minimal fees. FUSIX’s underperformance is a clear warning sign that higher fees do not guarantee better results.
3. In Less Efficient Markets (Emerging): FGOMX showed persistent outperformance, suggesting potential value in active management for this specific, more volatile sector. However, the investor must be comfortable paying the high premium for this potential.
Recommendation
For the majority of a core portfolio (U.S. and International stocks, and bonds), the data strongly supports opting for low-cost Fidelity index funds like **FSKAX, FSGGX, and FXNAX**. They offer greater predictability and cost savings that are a mathematical advantage over decades of investing.
Are the uncertain historical gains of active funds worth a guaranteed annual cost? The data suggests, in most cases, they are not.