FinancialPlanning. Here's how they determined which funds were the best.
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Evaluation criteria
To develop their pool of candidates, Conrad and Shilling began by looking at the 20 largest mutual funds as measured by assets. Many believe that asset size is an excellent indicator of fund quality. It takes consistently good performance over time to build the amount of assets that the 20 largest mutual funds have accumulated.
But other factors besides solid performance have drawn investors to these funds. Each fund offers an appealing combination of risk, stable management and reasonable cost. And because their performance is consistently good, few investors flee these funds when markets fall.
After determining the 20 largest funds, Conrad and Shilling ranked each fund based upon performance. They felt that longer-term performance was more meaningful than short-term. As a result, they used a five-year period to rank the mutual funds under consideration.
The top 10 funds
All of the top 10 mutual funds come from just three fund families: American Funds, Fidelity and Vanguard. Half of the top 10 are from American Funds. Six of the 10 and three of the top four are actively managed. This may surprise those who think that index funds are the only way to invest.
Here is Conrad and Shilling's top 10 list, in reverse order, with the associated five-year returns:
10. American Funds Capital World Growth & Income Fund: 10.80%
9. Vanguard Small Cap Index Fund: 12.92%
8. American Funds Washington Mutual Investors Fund: 14.36%
7. Vanguard Total Stock Market Index Fund: 14.67%
6. American Funds Investment Company of America Fund: 14.71%
5. Vanguard 500 Index Fund: 15.01%
4. American Funds Fundamental Investors Fund: 15.03%
3. Fidelity 500 Index Fund: 15.07%
2. American Funds Growth Fund of America: 16.15%
1. Fidelity Contrafund: 16.85%
It is hard for me to imagine that you wouldn't have a number of these funds in your 401(k) plan. If you don't have any, email the link to this piece to the human resources person in charge of your plan. Your fund lineup needs to be improved!