Our curated rankings of the best mutual funds were created by screening funds for several must-have metrics:
AUM: All funds on this list have accrued at least $10 billion in AUM, with many sporting much higher AUMs over this minimum.
Expense ratio: To be eligible for this ranking, funds must charge a net expense ratio of 0.04% or less.
Strategy: Each mutual fund on this list is passively managed by tracking an external benchmark index and is not actively managed.
Diversification: Funds on this list have a broad-market focus by targeting stocks from both growth and value styles, from more than one market-cap size and most of the 11 stock market sectors.
Minimum investment: All funds on this list have a minimum investment requirement of $3,000 or less.
Fees: No funds on this list charges sales load, transaction or 12b-1 fees.
Turnover: All funds on this list have a portfolio turnover rate of 4% or less.
Our methodology helped identify mutual funds that charge low fees, have operated for a long time, possess high diversification, incur minimal turnover and offer a passively managed indexing strategy.
Remember that what ultimately constitutes the best mutual fund for an individual investor’s needs will depend on their circ*mstances, such as risk tolerance, investment objectives and time horizon.
An experienced fund analyst selected the funds above, but they may not be right for your portfolio. Before purchasing any of these funds, do plenty of research to ensure they align with your financial goals and risk tolerance.
Why other funds didn’t make the cut
For this ranking, we began by screening the U.S. mutual fund universe for funds with traits that demonstrate economies of scale and popularity, and have a long track record of performance. As a result, the funds on this list come from three large well-known asset managers: Vanguard, Fidelity and Charles Schwab.
Next, we set a maximum expense ratio limit of 0.04% to ensure that eligible funds were among the most affordable and cost-effective options available to investors.
“Expense ratios directly impact the return to the shareholder, so funds with high expense ratios should be considered carefully,” says Emily Cozad, portfolio manager and research analyst at Buckingham Advisors.
In fact, fees play a large role in determining long-term net investment returns, so keeping these minimal is in an investor’s best interest.
We also eliminated funds that charged sales loads, 12b-1 fees and imposed minimum investment requirements. This allowed us to focus on funds more accessible to a broad range of investors and without the extra hidden costs that eat into returns.
Next, we excluded mutual funds with a narrow focus. For instance, mutual funds focusing only on large-cap, value, dividend, or financial sector stocks did not make the cut. While these funds have their uses, they are too specific for ranking the best overall mutual funds suitable for a wide range of investors.
Finally, we restricted our rankings to passively managed funds that track a benchmark index. By doing so, we excluded actively managed mutual funds.
We arrived at this decision after reviewing the results of the latest SPIVA Scorecard from the S&P Dow Jones Indices, which measures the performance of actively managed funds worldwide against their index benchmarks.
While actively managed funds can target different objectives like income or risk management, the research showed that the majority failed to outperform an index over long periods. For example, SPIVA showed that 93.4% of U.S. large-cap funds underperformed the S&P 500 over the last 15 years, as of Dec. 31, 2022.
