There are many ETF databases out there. Morningstar covers mutual funds very well. But what are the BEST ETFs and mutual funds? How do you measure it?
What Is The Best ETF And Mutual Fund?
Article Contents
This post was inspired by Paul Merriman who has for many years recommended ETFs and mutual funds to implement his portfolio strategies. I have expanded on the “Best In Class” concept to include many more asset classes.
The first thing you should know is that there is rarely ONE best ETF or fund. It all depends on a host of variables:
- Your goals
- Your portfolio
- Your tax situation
- Your broker (some funds are commission-free).
- Subjective opinion about the data.
There are A LOT of really, really BAD ETFs and mutuals funds out there. Make sure you avoid the worst by picking one of ETFs below.
As of 2020 we now also track ESG funds. We also track the dividend yields and expense ratios for all funds.
To find out more about ESG investing check out our article ESG Investment Portfolios On Portfolio Einstein.
Best ETF and Mutual Fund for each asset class
| Asset Class | Mutual Fund | ETF | ESG ETF | ETF Yield | ETF Expense ratio | ESG ETF Yield | ESG ETF Expense ratio |
|---|---|---|---|---|---|---|---|
| Total US Market | VTSAX | VTI | ESGU | 1.77% | 0.03% | 1.43%% | 0.15% |
| Large Cap Value | VVIAX | VONV | VTV | 2.69% | 0.04% | 2.69% | 0.04% |
| Large Cap Blend (S&P 500) | VFIAX | VOO | ESGU | 1.79% | 0.04% | 1.43%% | 0.15% |
| Large Cap Growth | VIGAX | VUG | VUG | 0.93% | 0.04% | 0.93% | 0.04% |
| Mid Cap Value | VMVAX | VOE | JKI | 2.40% | 0.30% | 2.40% | 0.30% |
| Mid Cap Blend | VIMAX | VO | IJH | 1.59% | 0.06% | 1.59% | 0.06% |
| Mid Cap Growth | VMGMX | VOT | IJK | 1.06% | 0.24% | 1.06% | 0.24% |
| Small Cap Value | VSIAX | VIOV | VIOV | 1.57% | 0.15% | 1.57% | 0.15% |
| Small Cap Blend | VSMAX | VIOO | ESML | 1.34% | 0.10% | 1.25% | 0.17% |
| Small Cap Growth | VSGAX | VBK | IJT | 0.90% | 0.25% | 0.90% | 0.25% |
| Micro Cap | VEXPX | IWC | IWC | 1.16% | 0.60% | 1.16% | 0.60% |
| Real Estate - REIT | VGSLX | VNQ | VNQ | 3.34% | 0.12% | 3.34% | 0.12% |
| International Developed | VTMGX | VEA | ESGD | 2.98% | 0.05% | 2.88% | 0.20% |
| Emerging Markets | VEMAX | VWO | ESGE | 3.14% | 0.12% | 2.87% | 0.25% |
| Total International Ex-US | VTIAX | VEU | VEU | 3.03% | 0.09% | 3.03% | 0.09% |
| International Pacific | VPADX | VPL | VPL | 2.78% | 0.09% | 2.78% | 0.09% |
| International Europe | VEUSX | VGK | VGK | 3.22% | 0.09% | 3.22% | 0.09% |
| International Value | VTRIX | EFV | EFV | 4.54% | 0.39% | 4.54% | 0.39% |
| International Small | VFSAX | VSS | VSS | 3.19% | 0.12% | 3.19% | 0.12% |
| Long Term Treasury | VLGSX | TLT | TLT | 1.96% | 0.15% | 1.96% | 0.15% |
| Intermediate Term Treasury | VSIGX | VGIT | VGIT | 1.53% | 0.05% | 1.53% | 0.05% |
| Short Term Treasury | VSBSX | VGSH | VGSH | 1.49% | 0.05% | 1.49% | 0.05% |
| Total Bond Market | VBTLX | BND | EAGG | 2.13% | 0.04% | 1.69% | 0.10% |
| Short Term Govt/Corp Bond | VBIRX | BSV | VCSH | 2.04% | 0.05% | 2.04% | 0.05% |
| T-bills/Treasury Money Market | VUSXX | BIL | BIL | 1.38% | 0.14% | 1.38% | 0.14% |
| Inter. Term Corporate Bond | VICSX | LQD | SUSC | 2.71% | 0.15% | 2.40% | 0.18% |
| Commodities | DBC | DBC | 1.61% | 0.85% | 1.61% | 0.85% | |
| Gold | IAU | IAU | 0.00% | 0.25% | 0.00% | 0.25% | |
| Energy Sector | VGELX | XLE | XLE | 4.24% | 0.13% | 4.24% | 0.13% |
| Health Care Sector | VGHAX | XLV | XLV | 1.58% | 0.13% | 1.58% | 0.13% |
| Precious Metals Sector | FSAGX | GLTR | GLTR | 0.00% | 0.60% | 0.00% | 0.60% |
| Short Term Tax Exempt Munis | VWSUX | SUB | SUB | 0.93% | 0.07% | 0.93% | 0.07% |
| Inter. Term Tax Exempt Munis | VWIUX | VTEB | VTEB | 1.52% | 0.08% | 1.52% | 0.08% |
| Long Term Tax Exempt Munis | VWLUX | PZA | PZA | 1.80% | 0.28% | 1.80% | 0.28% |
| Short Term Investment Grade | VFSUX | VCSH | SUSB | 2.04% | 0.05% | 1.81% | 0.12% |
| High Yield Corporate Bonds | VWEAX | HYG | HYG | 4.45% | 0.49% | 4.45% | 0.49% |
| Treasury Inflation-Protected - TIPS | VAIPX | VTIP | VTIP | 0.04% | 0.06% | 0.04% | 0.06% |
| Global Bonds | VGCAX | BNDW | BNDW | 1.87% | 0.06% | 1.87% | 0.06% |
| International Bonds | VTABX | BNDX | BNDX | 0.53% | 0.09% | 0.53% | 0.09% |
| Extended Market | VEXAX | VXF | VXF | 1.39% | 0.07% | 1.39% | 0.07% |
| Total World Market | VTWAX | VT | VT | 2.27% | 0.09% | 2.27% | 0.09% |
| Momentum Factor | N/A | MTUM | MTUM | 1.45% | 0.15% | 1.45% | 0.15% |
| Quality Factor | N/A | QUAL | QUAL | 1.56% | 0.15% | 1.56% | 0.15% |
| Minimum Volatility Factor | N/A | USMV | USMV | 1.85% | 0.15% | 1.85% | 0.15% |
| Value Factor | N/A | VLUE | VLUE | 2.54% | 0.15% | 2.54% | 0.15% |
| Dividend Growth | VDADX | VIG | VIG | 1.78% | 0.06% | 1.78% | 0.06% |
| High Dividend Yield | VHYAX | VYM | VYM | 3.29% | 0.06% | 3.29% | 0.06% |
| International Small Value | N/A | DLS | DLS | 3.32% | 0.58% | 3.32% | 0.58% |
| Emerging Markets Small Blend | N/A | EWX | EWX | 2.21% | 0.65% | 2.21% | 0.65% |
| Emerging Markets Value | N/A | FNDE | FNDE | 3.38% | 0.39% | 3.38% | 0.39% |
| One-Year Fixed-Income | VBISX | BSV | BSV | 1.64% | 0.07% | 1.64% | 0.07% |
| Two-Year Global Fixed-Income | N/A | BNDW | BNDW | 1.87% | 0.06% | 1.87% | 0.06% |
| Five-Year Global Fixed-Income | N/A | BNDW | BNDW | 1.87% | 0.06% | 1.87% | 0.06% |
| Emerging Market Bonds | VEMBX | VWOB | VWOB | 4.22% | 0.30% | 4.22% | 0.30% |
| Long Term Investment-grade Bonds | VWSEX | VCLT | VCLT | 3.37% | 0.05% | 3.37% | 0.05% |
| International REITs | VGRLX | VNQI | VNQI | 7.52% | 0.12% | 7.52% | 0.12% |
| Stocks Canada | N/A | VCN | VCN | 2.87% | 0.06% | 2.87% | 0.06% |
| Bonds Canada | N/A | VAB | VAB | 2.66% | 0.09% | 2.66% | 0.09% |
| Global REIT | N/A | REET | REET | 5.20% | 0.14% | 5.20% | 0.14% |
| MBS Mortgages | VMBSX | VMBS | VMBS | 2.36% | 0.05% | 2.36% | 0.05% |
| Long Term Treasury STRIPS | N/A | EDV | EDV | 2.10% | 0.07% | 2.10% | 0.07% |
| Inter. Term Govt/Corp Bond | VBILX | BIV | BIV | 2.01% | 0.07% | 2.01% | 0.07% |
| Preferred Stocks | N/A | PFF | PFF | 4.54% | 0.46% | 4.54% | 0.46% |
The ETFs and Mutual funds have been selected by these criteria
- Tracking error. The fund must track its underlying index very closely or it is of no use.
- Fees. Low expense ratios win the day and are one of the best indicators of performance.
- Bid/ask spread. This is relevant for ETFs that trade on the open market. Is the gap (spread) of the buy and sell price is too great it imposes an additional cost to the investor. Therefore the lower the bid/ask spread, the better.
- Liquidity. This means how many shares of the fund are being traded every day. A good fund needs tens of thousands of shares traded every day.
- Holdings. The holdings by the fund need to be liquid.
- Respectable fund provider.
- Turnover rate. Every time a fund buys and sells the underlying stock it could be exposing itself to capital gains tax. Those taxes are channeled to the investor, so you want as low turnover as possible.
Together these factors decide if the fund represents the appropriate asset class the best.
How to verify and do your own research
Morningstar.com is a great resource to research ETFs and mutual funds. If you want to research U.S. small-cap value ETFs you could look up VIOV, VBR, and SLYV (among others) on morningstar.com. Click the portfolio tab and you get an overview of whats in the fund. Here are the 3 funds as per 2018:
VIOV: Vanguard S&P Small-Cap 600 Value Index Fund ETF Shares
VBR: Vanguard Small-Cap Value Index Fund ETF Shares
SLYV: SPDR® S&P 600 Small Cap Value ETF
As you can see VBR has some attributes that make it a poor candidate for representing the small-cap value asset class:
- It has style drifted. It has gone from a small-cap fund (2017) to a mid-cap fund (2018).
- The average size of the holding is more than twice that of SLYV and VIOV.
I cheated a little and selected two funds, SLYV and VIOV, that both track the same index. The S&P Small-Cap 600 Value Index.
Next, you want to check:
- Fees (under fees & expenses), lower is better.
- Turnover rate (under fees & expenses), lower is better.
Super important note:
Notice that a return comparison doesn’t even factor in when we are comparing funds. If we follow the above guidelines we would select the best funds and therefore theoretically get the appropriate returns for that asset class. Sure some fund may beat other funds within the same category but chasing performance is a loser’s game.
If you find that you have found two equally good funds – BUY THEM BOTH. No need to agonize over which funds to select. The commission on buying and selling is cheap and sometimes free. It is a very small price to pay to avoid regret.
Summary and next steps
It is not easy finding the BEST ETF or mutual fund. But it is easy to AVOID the worst. By using a few simple metrics and Morningstar you can narrow down the field to just a few. While finding the best fund may be impossible, it is often to find one that is good enough.
Let me know what your best ETFs are in the comments!
I stumbled on your web site. I’m recently retired and I’ve decided to move away from a hodge podge of stocks, mutual funds and ETFs and go to a more disciplined diversified portfolio of ETFs and some mutual funds that I will keep due to their built-in gains. I’ve really been looking at Merriman’s portfolios, but I’m going to pay for your premium site and check out some others. I did want to point out one thing. I know that this web site must be a huge undertaking and I certainly appreciate that. Chris Pedersen at Merriman foundation has some different best in class ETFs for Merriman’s portfolios. He has written about how he goes about this analysis. One thing I did find interesting is that because Merriman has such a tilt to small cap and small cap value Pedersen really wants ETFs that are small cap for his small cap allocation. He has found that because Vanguard funds are so large they by necessity can’t just swim in the small cap world for their small cap funds. Pedersen has used Portfoliovisualizer to analyzed the composition of the ETFs to find which have a higher percentage of small caps. He may take a fund with a higher expense ratio in order to get one with a higher percentage of small caps.