Picking a fund from thousands of choices might seem difficult. Turns out it's pretty simple. Only ten really matter — and most are tied to an index like the S&P 500.
Just 10 "wealth creator" funds, like Vanguard Total Stock Market (VTSMX), made investors a staggering $5 trillion richer in 10 years, says a new analysis from Morningstar. These are in sharp contrast with the bulk of other funds that languish — or worse — destroy portfolios over time.
The best news? You don't have to be rich or pay huge fees to own these top funds. Nearly all these value creators charge rock-bottom fees and are open to all investors. The average fee charged by these top 10 funds is just 0.15%.
"Not surprisingly, 10 of the 15 funds are low-cost passively managed funds that track broad market indexes," said Morningstar's Amy Arnott. "Because few active managers have been able to consistently add value, buying the market and keeping costs low has been a winning strategy."
Vanguard Rules The Rest
When it comes to adding value for shareholders, no one gets even close to Vanguard.
Half of the top wealth-creating funds in the past decade are all Vanguard funds, Morningstar found. The include the No. 1 moneymaker Vanguard Total Stock Market, which single-handedly made investors $917 billion richer. Part of the power is the fund's low fee: just 0.14%. But it's also indexed to a diversified portfolio.
The $1.6 trillion-in-assets Vanguard Total Stock Market owns more than 3,700 stocks representing the U.S. stock market. That includes small and midsize stocks. All told, $10,000 plunked into the fund 10 years ago would be worth more than $30,000 now.
But don't think Vanguard just got lucky with a hot fund. Its Vanguard S&P 500 ETF (VFINX) is the No. 2 top wealth creator. This fund made investors $625.5 billion richer. And it charges just 0.14%. These two funds explain why Vanguard, as a fund family, is the top maker of wealth. The group added $3.8 trillion in wealth, which is more than double that of No. 2 (Fidelity).
One theme is clear: Skipping human managers' active stock picks and sticking with passive indexes was the way to go. Other S&P 500 funds, though, are close behind. The popular SPDR S&P 500 ETF Trust added nearly $300 billion in shareholder wealth and charges just 0.095% annually. And Fidelity 500 Index Fund (FXAIX) is No. 4 adding $290.3 billion in wealth.
Investors are voting with their wallets. "Passively managed mutual funds were able to offset only $4.1 billion of the $74.7 billion of outflows from actively managed mutual funds during (December)," says Cerruli Associates.
What about the stock pickers?
Human stock pickers simply can't seem to keep up with the indexes over time.
The only human-run fund to crack the top 10 of wealth creators is Fidelity Contrafund (FCNTX) run by manager Will Danoff. But the fund's recent performance has slipped a bit lately. And the fund charges 0.55% annually, an amount that looks steep compared to indexes. That creates a headwind for the fund to overcome.
Keeping it simple pays off. The top category for wealth generation is the standard large-cap blend category.
Such big gains show investors who trust the right fund managers profit. "The biggest players in the fund industry are often vilified as having too much power and failing to act in the best interests of their shareholders," Arnott said. "But as the results ... show, the largest funds and fund families have created significant value where it counts: by increasing dollar value for shareholders."
Top Wealth Creating Funds
Based on past 10 years
| Fund | Symbol | Category | Wealth created ($ bil) | Fund size ($ bil) | Fee |
|---|---|---|---|---|---|
| Vanguard Total Stock Market | VTSMX | Large Blend | $917.65 | $1,458.54 | 0.14% |
| Vanguard S&P 500 | VFINX | Large Blend | 625.51 | 980.35 | 0.14% |
| SPDR S&P 500 ETF Trust | Large Blend | 295.77 | 475.43 | 0.095% | |
| Fidelity 500 Index Fund | FXAIX | Large Blend | 290.3 | 471.91 | 0.015% |
| iShares Core S&P 500 | Large Blend | 229.07 | 403.04 | 0.030% | |
| Vanguard Institutional Index Fund | VINIX | Large Blend | 216.83 | 265.42 | 0.035% |
| Invesco QQQ Trust, Series 1 | Large Growth | 148.95 | 231.45 | 0.20% | |
| Vanguard Growth | VIGRX | Large Growth | 142.08 | 200.55 | 0.17% |
| Vanguard Total International Stock | VGTSX | Foreign Large Blend | 135.82 | 403.58 | 0.17% |
| Fidelity Contrafund | FCNTX | Large Growth | 116.78 | 116.9 | 0.55% |
