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They generally combine low fees with high liquidity and broad diversification. In most cases, the largest ones are also those best suited to act as core portfolio holdings. Investors are attracted to the biggest funds for these reasons, and the fact that it’s easier to trust mutual funds that so many others have placed their trust in.
In this article, we’ll examine five of the largest funds and their strategies, holdings, fees and performance.
In case if you are wondering whether mutual funds are right for you at all, you should read why mutual funds, in general, should be a part of your portfolio.
In 1992, Vanguard created the Total Stock Market Index fund with the goal of investing in the entire stock market universe. It invests in large-, mid- and small-cap stocks across all sectors and styles, and represents nearly 100% of the investable U.S. stock market. The fund tracks the CRSP U.S. Total Market Index.
Since it’s a market-cap-weighted index, the portfolio as a whole still skews heavily towards large-caps. The heaviest weightings in the fund currently go to financials (20%) and technology (18%), with healthcare, consumer services and industrials each getting 13% of fund assets. The fund manages a total of nearly $600 billion.
Since the financial crisis in 2008, the fund has posted eight straight years of gains and is poised to extend the streak to nine in 2017.
Despite the Vanguard Total Stock Market Index fund topping this list, the S&P 500 still remains the most popularly tracked benchmark in the marketplace. Vanguard’s 500 Index fund is the clear leader in this space, with $568 billion in assets across all share classes of the fund. Designed to provide long-term growth by focusing mostly on large companies, the fund is one of the oldest index funds in existence, having launched back in 1976. The majority of retail investors opt for the lower-cost Admiral share class, which charges just 0.04% annually, making it one of the cheapest mutual funds available. Technology, financials and healthcare, the three largest sectors in the fund, make up roughly half of the portfolio.
The fund’s focus on broad diversification and low fees has served shareholders well. Despite significant losses during the financial crisis, the 500 Index fund has managed to outperform 80% of peers in Morningstar’s Large Blend category over the past 10 years.
Investing overseas provides individuals with additional growth opportunities, but those opportunities come with added risk. The Vanguard Total International Stock Index fund seeks long-term growth by focusing on large, stable companies, primarily from the world’s developed markets. Nearly 75% of the fund’s investments come from the European and Asian regions, while 20% is invested in emerging markets. Japan (17%), the United Kingdom (13%) and Canada (7%) are the largest individual country holdings.
Foreign equities have experienced more pain in recent years thanks to higher regional, political, currency and economic risks. This fund has posted losses in half of the years this decade as weak economic growth and crippling debt loads in areas such as Greece, Portugal and Italy have left investors struggling to profit overseas. Brexit in the U.K. has added an additional layer of uncertainty.
Be sure to check out the emerging market regions that might be offering the best opportunities at the moment here.
The Vanguard Total Bond Market Index fund is designed to provide investors with broad exposure to all areas of the fixed income markets. It invests in a mix of roughly two-thirds government and treasury securities and one-third corporate bonds. The fund can invest in securities both short- and long-term, but sticks to only investment-grade bonds.
Interest rates have dropped to record low levels over the past few years, which has been good news for fixed-income investors. As a result, the fund has posted only one losing year over the past decade.
Take a look at our list of bond funds here.
The Growth Fund of America is the only actively managed fund on the list. It looks for long-term growth of capital by having the flexibility to invest wherever the best growth opportunities exist. That flexibility extends to foreign investments, where the fund can invest up to 25% of assets, as well as bonds. The fund’s managers are currently finding the greatest opportunities in technology and consumer staples, which comprise nearly half of the fund’s assets. Top individual holdings include Amazon, Alphabet, Microsoft and Broadcom.
Check out the list of emerging market funds here. Also be sure to check out our list of international equity funds here to broaden your research.
The fund’s focus on growth tends to make it somewhat riskier at times, resulting in wider swings in performance. The fund posted a loss in 2011, a year in which many equity funds posted gains, but the fund has significantly outperformed the S&P 500 over the longer term.
All five funds on this list make great core holdings in most portfolios. Their large asset bases show that they’ve earned the trust of investors due to many years of solid performance and lower fees. That track record, along with broad diversification and liquidity, should allow them to remain popular with investors for years to come.
Be sure check our News section to keep track of the recent fund performances.
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Practice Management
Practice Management
MUTUAL FUND EDUCATION
MUTUAL FUND EDUCATION
