What Is The Best ETF And Mutual Fund?

BEST ETFs and Mutual Funds

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.

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 ClassMutual FundETFESG ETFETF YieldETF Expense ratioESG ETF YieldESG ETF Expense ratio
Total US MarketVTSAXVTIESGU1.77%0.03%1.43%%0.15%
Large Cap ValueVVIAXVONVVTV2.69%0.04%2.69%0.04%
Large Cap Blend (S&P 500)VFIAXVOOESGU1.79%0.04%1.43%%0.15%
Large Cap GrowthVIGAXVUGVUG0.93%0.04%0.93%0.04%
Mid Cap ValueVMVAXVOEJKI2.40%0.30%2.40%0.30%
Mid Cap BlendVIMAXVOIJH1.59%0.06%1.59%0.06%
Mid Cap GrowthVMGMXVOTIJK1.06%0.24%1.06%0.24%
Small Cap ValueVSIAXVIOVVIOV1.57%0.15%1.57%0.15%
Small Cap BlendVSMAXVIOOESML1.34%0.10%1.25%0.17%
Small Cap GrowthVSGAXVBKIJT0.90%0.25%0.90%0.25%
Micro CapVEXPXIWCIWC1.16%0.60%1.16%0.60%
Real Estate - REITVGSLXVNQVNQ3.34%0.12%3.34%0.12%
International DevelopedVTMGXVEAESGD2.98%0.05%2.88%0.20%
Emerging MarketsVEMAXVWOESGE3.14%0.12%2.87%0.25%
Total International Ex-USVTIAXVEUVEU3.03%0.09%3.03%0.09%
International PacificVPADXVPLVPL2.78%0.09%2.78%0.09%
International EuropeVEUSXVGKVGK3.22%0.09%3.22%0.09%
International ValueVTRIXEFVEFV4.54%0.39%4.54%0.39%
International SmallVFSAXVSSVSS3.19%0.12%3.19%0.12%
Long Term TreasuryVLGSXTLTTLT1.96%0.15%1.96%0.15%
Intermediate Term TreasuryVSIGXVGITVGIT1.53%0.05%1.53%0.05%
Short Term TreasuryVSBSXVGSHVGSH1.49%0.05%1.49%0.05%
Total Bond MarketVBTLXBNDEAGG2.13%0.04%1.69%0.10%
Short Term Govt/Corp BondVBIRXBSVVCSH2.04%0.05%2.04%0.05%
T-bills/Treasury Money MarketVUSXXBILBIL1.38%0.14%1.38%0.14%
Inter. Term Corporate BondVICSXLQDSUSC2.71%0.15%2.40%0.18%
CommoditiesDBCDBC1.61%0.85%1.61%0.85%
GoldIAUIAU0.00%0.25%0.00%0.25%
Energy SectorVGELXXLEXLE4.24%0.13%4.24%0.13%
Health Care SectorVGHAXXLVXLV1.58%0.13%1.58%0.13%
Precious Metals SectorFSAGXGLTRGLTR0.00%0.60%0.00%0.60%
Short Term Tax Exempt MunisVWSUXSUBSUB0.93%0.07%0.93%0.07%
Inter. Term Tax Exempt MunisVWIUXVTEBVTEB1.52%0.08%1.52%0.08%
Long Term Tax Exempt MunisVWLUXPZAPZA1.80%0.28%1.80%0.28%
Short Term Investment GradeVFSUXVCSHSUSB2.04%0.05%1.81%0.12%
High Yield Corporate BondsVWEAXHYGHYG4.45%0.49%4.45%0.49%
Treasury Inflation-Protected - TIPSVAIPXVTIPVTIP0.04%0.06%0.04%0.06%
Global BondsVGCAXBNDWBNDW1.87%0.06%1.87%0.06%
International BondsVTABXBNDXBNDX0.53%0.09%0.53%0.09%
Extended MarketVEXAXVXFVXF1.39%0.07%1.39%0.07%
Total World MarketVTWAXVTVT2.27%0.09%2.27%0.09%
Momentum FactorN/AMTUMMTUM1.45%0.15%1.45%0.15%
Quality FactorN/AQUALQUAL1.56%0.15%1.56%0.15%
Minimum Volatility FactorN/AUSMVUSMV1.85%0.15%1.85%0.15%
Value FactorN/AVLUEVLUE2.54%0.15%2.54%0.15%
Dividend GrowthVDADXVIGVIG1.78%0.06%1.78%0.06%
High Dividend YieldVHYAXVYMVYM3.29%0.06%3.29%0.06%
International Small ValueN/ADLSDLS3.32%0.58%3.32%0.58%
Emerging Markets Small BlendN/AEWXEWX2.21%0.65%2.21%0.65%
Emerging Markets ValueN/AFNDEFNDE3.38%0.39%3.38%0.39%
One-Year Fixed-IncomeVBISXBSVBSV1.64%0.07%1.64%0.07%
Two-Year Global Fixed-IncomeN/ABNDWBNDW1.87%0.06%1.87%0.06%
Five-Year Global Fixed-IncomeN/ABNDWBNDW1.87%0.06%1.87%0.06%
Emerging Market BondsVEMBXVWOBVWOB4.22%0.30%4.22%0.30%
Long Term Investment-grade BondsVWSEXVCLTVCLT3.37%0.05%3.37%0.05%
International REITsVGRLXVNQIVNQI7.52%0.12%7.52%0.12%
Stocks CanadaN/AVCNVCN2.87%0.06%2.87%0.06%
Bonds CanadaN/AVABVAB2.66%0.09%2.66%0.09%
Global REITN/AREETREET5.20%0.14%5.20%0.14%
MBS MortgagesVMBSXVMBSVMBS2.36%0.05%2.36%0.05%
Long Term Treasury STRIPSN/AEDVEDV2.10%0.07%2.10%0.07%
Inter. Term Govt/Corp BondVBILXBIVBIV2.01%0.07%2.01%0.07%
Preferred StocksN/APFFPFF4.54%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!

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1 thought on “What Is The Best ETF And Mutual Fund?”

  1. 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.

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