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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 FundsETFExpense Ratio Mutual fundExpense RatioDividend Yield (ETF)
Total US MarketVTSAXVTI0.04%0.03%1.77%
Large Cap ValueVVIAXVTV0.05%0.04%2.69%
Large Cap Blend (S&P 500)VFIAXVV0.04%0.04%1.79%
Large Cap GrowthVIGAXVUG0.05%0.04%0.93%
Mid Cap ValueVMVAXJKI0.07%0.30%2.40%
Mid Cap BlendVIMAXIJH0.05%0.06%1.59%
Mid Cap GrowthVMGMXIJK0.07%0.24%1.06%
Small Cap ValueVSIAXVIOV0.07%0.15%1.57%
Small Cap BlendVSMAXVIOO0.05%0.10%1.34%
Small Cap GrowthVSGAXIJT0.07%0.25%0.90%
Micro CapIWC0.60%1.16%
Real Estate - REITVGSLXVNQ0.12%0.12%3.34%
International DevelopedVTMGXVEA0.07%0.05%2.98%
Emerging MarketsVEMAXVWO0.14%0.12%3.14%
Total InternationalVTIAXVEU0.11%0.09%3.03%
International PacificVPADXVPL0.10%0.09%2.78%
International EuropeVEUSXVGK0.10%0.09%3.22%
International ValueEFV0.39%4.54%
International SmallVFSAXVSS0.16%0.12%3.19%
Long Term TreasuryVLGSXTLT0.07%0.15%1.96%
Intermediate Term TreasuryVSIGXVGIT0.07%0.05%1.53%
Short Term TreasuryVSBSXVGSH0.07%0.05%1.49%
Total Bond MarketVBTLXBND0.05%0.04%2.13%
Short Term Govt/Corp BondVBIRXVCSH0.07%0.05%2.04%
T-bills/Treasury Money MarketVUSXXBIL0.09%0.14%1.38%
Inter. Term Corporate BondVICSXLQD0.07%0.15%2.71%
CommoditiesDBC0.85%1.61%
GoldIAU0.25%0.00%
Energy SectorVGELXXLE0.30%0.13%4.24%
Health Care SectorVGHAXXLV0.33%0.13%1.58%
Precious Metals SectorFSAGXGLTR0.84%0.60%0.00%
Short Term Tax Exempt MunisVWSUXSUB0.09%0.07%0.93%
Inter. Term Tax Exempt MunisVWIUXVTEB0.09%0.08%1.52%
Long Term Tax Exempt MunisVWLUXPZA0.09%0.28%1.80%
Short Term Investment GradeVFSUXVCSH0.10%0.05%2.04%
High Yield Corporate BondsVWEAXHYG0.13%0.49%4.45%
Treasury Inflation-Protected - TIPSVAIPXVTIP0.10%0.06%0.04%
Global BondsBNDW0.06%1.87%
International BondsVTABXBNDX0.11%0.09%0.53%
Extended MarketVEXAXVXF0.08%0.07%1.39%
Total World MarketVTWAXVT0.10%0.09%2.27%
Momentum FactorMTUM0.15%1.45%
Quality FactorQUAL0.15%1.56%
Minimum Volatility FactorUSMV0.15%1.85%
Value FactorVLUE0.15%2.54%
Dividend GrowthVDADXVIG0.08%0.06%1.78%
High Dividend YieldVHYAXVYM0.08%0.06%3.29%
International Small ValueDLS0.58%3.32%
Emerging Markets Small BlendEWX0.65%2.21%
Emerging Markets ValueFNDE0.39%3.38%
One-Year Fixed-IncomeVBISXBSV0.15%0.07%1.64%
Two-Year Global Fixed-IncomeBNDW0.06%1.87%
Five-Year Global Fixed-IncomeBNDW0.06%1.87%
Emerging Market BondsVWOB0.30%4.22%
Long Term Investment-grade BondsVWSEXVCLT0.22%0.05%3.37%
International REITsVNQI0.12%7.52%
Stocks CanadaVCN0.06%2.87%
Bonds CanadaVAB0.09%2.66%
Global REITREET0.14%5.20%
MBS MortgagesVMBS0.05%2.36%
Long Term Treasury STRIPSEDV0.07%2.10%
Inter. Term Govt/Corp Bond - ITBVBILXBIV0.07%0.07%2.01%
Preferred SharesPFF0.46%4.54%

 

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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