What Is The Best ETF And Mutual Fund?

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?

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.

Best ETF and Mutual Fund for each asset class

Asset ClassMutual FundsETFNumber of holdings (ETF)Expense Ratio ETFExpense Ratio Mutual fund
US Total Stock MarketVTSMXVTI33980.04%0.14%
US Large CapVLACXVV5940.05%0.17%
US Large Cap ValueVIVAXVTV7040.05%0.17%
US Large Cap GrowthVIGRXVUG2990.05%0.17%
US Mid CapVIMSXIJH14720.07%0.17%
US Mid Cap ValueVMVIXJKI1850.30%
US Mid Cap GrowthVMGRXIJK2400.25%
US Small CapNAESXVIOO6000.15%0.17%
US Small Cap ValueVISVXVIOV4550.20%0.19%
US Small Cap GrowthVSGAXIJT3400.25%
US Micro CapBRSIXIWC13600.60%0.86%
US High Dividend YieldVHDYXVYM3940.08%0.15%
International All-World ex-USVFWIXVEU27120.11%0.23%
Int. Developed BlendVDVIXVEA39050.07%0.17%
International Lg Cap ValueVTRIXEFV6090.38%0.40%
Intl Sm Cap BlendVFSVXVSS14280.13%0.25%
Intl Sm Cap ValueN/ADLS9100.58%
European StocksVEURXVGK10940.10%
Pacific StocksVPACXVPL10120.10%
Emerging MarketsVEIEXVWO15690.14%0.32%
Emerging Markets ValueDFEVXFNDE3090.39%
Emerging Markets Small CapDEMSXEWX9750.65%
International REITs (Real Estate)VRXRXVNQI4230.14%
Total World StockVTWSXVT81220.10%0.19%
Cash (money market fund)VMMXXBIL130.14%
Short Term TreasuryVSCSXVGSH240.07%0.07%
1 Year Fixed IncomeBSV340.07%
Intermediate Term TreasuryVFITXVGIT250.07%0.20%
10-year TreasuryIEF150.15%
Long Term TreasuryVUSTXTLT310.15%0.20%
Total US Bond MarketVBMFXBND650.05%0.15%
5 Year Global Fixed IncomeBNDW3 (BND & BNDX + cash)0.09%
Global Bonds (USD Hedged)BNDW3 (BND & BNDX + cash)0.09%
Short-Term Investment GradeVFSTXVCSH670.07%0.20%
Intermediate Term Corporate BondsVFITXVCIT730.07%0.20%
Long-Term Corporate BondsVCLT780.07%
High Yield Corporate BondsHYG9710.49%
Corporate BondsLQD19600.15%
Short-Term Tax-ExemptSUB9920.07%
Intermediate-Term Tax-ExemptMUB37240.07%
Long-Term Tax-ExemptVWLTXVTEB650.09%
2 Year Global Fixed IncomeBNDX52810.11%
Non-US BondsBNDX52810.11%
Emerging Market BondsVWOB440.32%
REITs (Real Estate)VGISXVNQ1810.12%1.15%
GoldIAU1 (physical gold)0.25%
Precious MetalsGLTR4 (gold, silver, palladium, platinum)0.60%
CommoditiesDBC / GSG14 / 240.85% / 0.75%
Momentum FactorMTUM1250.15%
Dividend GrowthVIG1830.08%


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. Means how many shares of the fund are being traded every day. A good fund needs to tens of thousands of shares traded every day.
  • Holdings. The holdings by the fund needs to be liquid.
  • Respectable fund provider.
  • Turnover rate. Every time a fund buys and sells 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 represent 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 f.x. 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 fund. 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 losers 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 are 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.

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Let me know what your best ETFs are in the comments!

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