FZEXX vs FZDXX Question

[MercyMe]

Perhaps foolishly, I waffled funds back and forth a couple times in 2022 between Fidelity's FZEXX and FZDXX chasing yield. I finally said enough of this and just left it in FZEXX, but now that fund's TEY is lagging FZDXX by more than 1% point.

Why does FZEXX go up and down so much?

 

[audreyh1]

Can’t answer for the volatility, but the 1% difference would be because FZEXX is a municipal MM fund, and they are almost always lower. But the tax exempt interest can come out ahead for some folks - it totally depends on each individual’s tax situation.

 

[Freedom56]

Perhaps foolishly, I waffled funds back and forth a couple times in 2022 between Fidelity's FZEXX and FZDXX chasing yield. I finally said enough of this and just left it in FZEXX, but now that fund's TEY is lagging FZDXX by more than 1% point.

Why does FZEXX go up and down so much?

FZDXX is now yielding 4.46% vs 1.48% for FZEXX. The tax equivalent yield is 3.1% for FZEXX for the highest tax bracket. So it's more than 1% difference. FZDXX is more sensitive to the Fed funds rate due to the short term invests it holds that are linked to it.

 

[MercyMe]

FZDXX is now yielding 4.46% vs 1.48% for FZEXX. The tax equivalent yield is 3.1% for FZEXX for the highest tax bracket. So it's more than 1% difference. FZDXX is more sensitive to the Fed funds rate due to the short term invests it holds that are linked to it.

Right, I wrote "more than 1% point".
4.4% - 3.1% = 1.3%

I guess ultimately, the question is whether or not I should again switch back to FZDXX.

 

[Freedom56]

Right, I wrote "more than 1% point".
4.4% - 3.1% = 1.3%

I guess ultimately, the question is whether or not I should again switch back to FZDXX.

I would.

 

[audreyh1]

Right, I wrote "more than 1% point".
4.4% - 3.1% = 1.3%

I guess ultimately, the question is whether or not I should again switch back to FZDXX.

It completely depends on your personal tax situation.

 

[MercyMe]

It completes depends on your personal tax situation.

How so?

 

[COcheesehead]

How so?

In this case it likely doesn’t - you’d have to be in a tax bracket that doesn’t even exist for the muni to make sense unless you have some extreme tax situation.

 

[audreyh1]

How so?

You just have to look at your tax bracket to compare. I was speaking in general terms.

Unless you are in the top tax bracket don’t use that for comparisons. Of course lower tax brackets make the comparisons worse.

 

[MercyMe]

I would.

I swapped back to the FZDXX, and now FZEXX has a TEY for my tax bracket of 5.74%. Just a few days ago it was half of this and FZDXX was the clear winner. Now, FZEXX is a good bit better.

Here we go again. I don't understand how it could change so much. I could switch back again to FZEXX and get a tiny bit more yield than a 1 year treasury.

 

[COcheesehead]

I swapped back to the FZDXX, and now FZEXX has a TEY for my tax bracket of 5.74%. Just a few days ago it was half of this and FZDXX was the clear winner. Now, FZEXX is a good bit better.

Here we go again. I don't understand how it could change so much. I could switch back again to FZEXX and get a tiny bit more yield than a 1 year treasury.

You’d have to be in a tax bracket that does not exist for that to be true. Fidelity is reporting the 7 day yield at 3.51%.

 

[MercyMe]

You’d have to be in a tax bracket that does not exist for that to be true. Fidelity is reporting the 7 day yield at 3.51%.

Uh... not according to the chart on Fidelity's website...

 

[audreyh1]

The tax brackets shown above are not the current tax brackets, and the highest tax bracket today is 37%.

 

[COcheesehead]

Uh... not according to the chart on Fidelity's website...

3.57%x 1.388= 4.995%

But they include the Medicare kicker if you read the methodology

TEYs calculated for the two highest federal tax brackets (37% and 35%) include the 3.8% Medicare surtax that applies to net investment income above certain thresholds and thus the two highest federal tax rates are shown as 40.8% and 38.8%. Although some taxpayers in the 24% and 32% brackets may also be affected by the 3.8% Medicare surtax, TEYs calculated for the 24% and 32% brackets do not include the 3.8% Medicare surtax.

 

[braumeister]

The tax brackets shown above are not the current tax brackets, and the highest tax bracket today is 37%.

They explain that this way:

TEYs calculated for the two highest federal tax brackets (37% and 35%) include the 3.8% Medicare surtax that applies to net investment income above certain thresholds and thus the two highest federal tax rates are shown as 40.8% and 38.8%

 

[audreyh1]

3.57%x 1.388= 4.995%

But they include the Medicare kicker if you read the methodology

TEYs calculated for the two highest federal tax brackets (37% and 35%) include the 3.8% Medicare surtax that applies to net investment income above certain thresholds and thus the two highest federal tax rates are shown as 40.8% and 38.8%. Although some taxpayers in the 24% and 32% brackets may also be affected by the 3.8% Medicare surtax, TEYs calculated for the 24% and 32% brackets do not include the 3.8% Medicare surtax.

They explain that this way:

OK, thanks. That had me confused.

 

[COcheesehead]

OK, thanks. That had me confused.

I was perplexed at first as well.

 

[MercyMe]

I’m still perplexed. The TEY is correct since I do pay NIIT. So isn’t my concern here valid?

 

[COcheesehead]

I’m still perplexed. The TEY is correct since I do pay NIIT. So isn’t my concern here valid?

As I now better understand the methodology they use to calculate the equivalent, you may be better off in the tax free MM.
You can switch again. Fidelity allows you to do that.

 

[MercyMe]

Yes, I understand that FZEXX has a higher yield today. The original question from the top of this thread still remains a mystery.

Why does FZEXX go up and down so much?

 

[COcheesehead]

Yes, I understand that FZEXX has a higher yield today. The original question from the top of this thread still remains a mystery.

Why does FZEXX go up and down so much?

73% of the fund is in variable rate demand notes.

https://www.investopedia.com/terms/v/variable_rate_demand_note.asp

 

[MercyMe]

73% of the fund is in variable rate demand notes.

https://www.investopedia.com/terms/v/variable_rate_demand_note.asp

Yes, I know the funds consists largely of variable rate notes, but variable rate notes (being highly subjected to prevailing interest rates) have been on the rise for the last 10 to 11 months. Yet, this MM fund's 7 day yield was at 3%+ couple of months ago, then dropped to 1.3% then rose to 3.4% then dropped to 1.5% and now is 3.51%.

There must be some other explanation for why the 7 day yield is so volatile, other than its composition of variable rate notes. I'm thinking the 7 day parameter is too small of a window to capture the big-picture yield.

 

[COcheesehead]

Yes, I know the funds consists largely of variable rate notes, but variable rate notes (being highly subjected to prevailing interest rates) have been on the rise for the last 10 to 11 months. Yet, this MM fund's 7 day yield was at 3%+ couple of months ago, then dropped to 1.3% then rose to 3.4% then dropped to 1.5% and now is 3.51%.

There must be some other explanation for why the 7 day yield is so volatile, other than its composition of variable rate notes. I'm thinking the 7 day parameter is too small of a window to capture the big-picture yield.

I don’t see the seven day yields, just what I see on Fidelity shows it went from about 1.8% in October to 1.49% in Nov to 2.33% in Dec to 1.84% in January. Those are 30 day captures so you might be right about a wider time frame.

 

[youbet]

Yes, I understand that FZEXX has a higher yield today. The original question from the top of this thread still remains a mystery.

Why does FZEXX go up and down so much?

Just stumbled across this thread......

Good question. Schwab's closest equvalent, SWTXX, did the same thing. Therefore, I switched to SWVXX in my taxable account. Then SWTXX's yield quickly returned to the mid-3% range and I moved back. I really didn't expect such a short-lived but significant yield pot hole and also am curious if that's going to be common going forward.