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Passive U.S. Equity Funds Post Best Inflow Since '16: 5 Picks
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Passive U.S. equity funds registered its biggest monthly performance in terms of inflows for the month of January since December 2016. While, passive funds continue to attract investor attention, U.S.-based active equity funds are losing investors’ interest. Huge fund flows in passive funds helped the both U.S. and international equity funds to register significantly high inflows in January.
In this situation, adding favorably ranked passive mutual funds to ones portfolio may boost returns in the near future.
Healthy Inflows Into Passive Funds
According to a recent Morningstar report, actively managed U.S. equity funds saw an outflow of $24.1 billion in January, which was preceded by a withdrawal of $16.3 billion in December. In contrast to active funds, investors poured in $41.2 billion in passive U.S. equity funds, which was higher than December's $22.5 billion of inflows. The surge in inflows in passive U.S. equity funds clearly indicated that investors prefer passive funds over actively managed funds.
Moreover, fund flows for all key category groups for the month of January was $128.1 billion, the best since January 2013. Taxable bond funds, which registered the highest monthly inflows of $47 billion among all the category groups, distributed its investment both in passive and active funds. Moreover, the second-best category group, international equity funds posted inflows of $41.9 billion, of which a significant amount of flows went to passive funds.
Advantage of Passive Funds Over Active Ones
Passive funds are expected to be less risky compared to their active counterparts. Passive funds witness less trading activity than active portfolios and can thus avoid the risk of human errors faced by active funds. Meanwhile, a lower expense ratio compared to active funds played an important role in boosting demand for passive funds in recent times. As per Lipper, equity funds that are actively managed have an average expense ratio of 1.4%, significantly higher than 0.6% recorded by their passive counterparts.
Moreover, active funds are poised to be more volatile compared with the passive ones. While a passively managed fund or passive index fund is designed to resemble a broader market index and performance similar to it, funds that are actively managed seek to deliver profits higher than the industry barometer, which the fund is designed to beat. In this process, active funds are more exposed to volatility.
Buy These 5 Best Passive U.S. Equity Mutual Funds
As discussed, record inflows in passive domestic mutual funds indicated that this particular fund category is clearly expected to get more attention from investors. Banking on this encouraging backdrop, we have selected five passive U.S. equity mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging one, three and five-yearannualized returns. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Fidelity 500 Index Investor invests the majority of its assets in common stocks of companies included in the S&P 500 index, which largely signifies the performance of common stocks that are publicly traded in the United States.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 17%, 11.8% and 14.4%, respectively. FUSEX has an annual expense ratio of 0.09%, which is below the category average of 1.01%.
Vanguard Growth and Income Fund Investor Shares (VQNPX - Free Report) invests in a diversified group of stocks chosen with the help of quantitative analysis. VQNPX seeks stocks that are believed to provide dividend income, have an impressive growth prospect and, as a group, are likely to provide higher returns than the S&P 500 Index while having similar risk characteristics. The fund invests a minimum of 65% of its assets in companies included in the index.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 16.8%, 11.7% and 14.5%, respectively. VQNPX has an annual expense ratio of 0.34%, which is below the category average of 1.01%.
Vanguard Growth Index Investor (VIGRX - Free Report) seeks long-term capital growth by investing in equity securities of large-cap companies. VIGRX employs an indexing investment approach. The fund aims to track the performance of the CRSP US Large Cap Growth Index by investing most of its assets in stocks that make up the index.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 23.3%, 12.3% and 15.4%, respectively. VIGRX has an annual expense ratio of 0.17%, which is below the category average of 1.12%.
Fidelity Large Cap Growth Enhanced Index seeks appreciation of capital. FLGEX invests a large chunk of its assets in common stocks of large-cap companies included on the Russell 1000 Growth Index.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 23.6%, 12.9% and 16.2%, respectively. FLGEX has an annual expense ratio of 0.45%, which is below the category average of 1.12%.
Goldman Sachs Large Cap Value Insights A (GCVAX - Free Report) invests heavily in securities of large-cap companies, which have market capitalization within the range of the Russell 1000 Index. GCVAX seeks long-term appreciation of capital and dividend income. It invests in securities of domestic and foreign companies that are traded in the United States. The fund may also invest in fixed-income securities.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 11.5%, 9.2% and 12.8%, respectively. GCVAX has an annual expense ratio of 0.96%, which is below the category average of 1.05%.
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Passive U.S. Equity Funds Post Best Inflow Since '16: 5 Picks
Passive U.S. equity funds registered its biggest monthly performance in terms of inflows for the month of January since December 2016. While, passive funds continue to attract investor attention, U.S.-based active equity funds are losing investors’ interest. Huge fund flows in passive funds helped the both U.S. and international equity funds to register significantly high inflows in January.
In this situation, adding favorably ranked passive mutual funds to ones portfolio may boost returns in the near future.
Healthy Inflows Into Passive Funds
According to a recent Morningstar report, actively managed U.S. equity funds saw an outflow of $24.1 billion in January, which was preceded by a withdrawal of $16.3 billion in December. In contrast to active funds, investors poured in $41.2 billion in passive U.S. equity funds, which was higher than December's $22.5 billion of inflows. The surge in inflows in passive U.S. equity funds clearly indicated that investors prefer passive funds over actively managed funds.
Moreover, fund flows for all key category groups for the month of January was $128.1 billion, the best since January 2013. Taxable bond funds, which registered the highest monthly inflows of $47 billion among all the category groups, distributed its investment both in passive and active funds. Moreover, the second-best category group, international equity funds posted inflows of $41.9 billion, of which a significant amount of flows went to passive funds.
Advantage of Passive Funds Over Active Ones
Passive funds are expected to be less risky compared to their active counterparts. Passive funds witness less trading activity than active portfolios and can thus avoid the risk of human errors faced by active funds. Meanwhile, a lower expense ratio compared to active funds played an important role in boosting demand for passive funds in recent times. As per Lipper, equity funds that are actively managed have an average expense ratio of 1.4%, significantly higher than 0.6% recorded by their passive counterparts.
Moreover, active funds are poised to be more volatile compared with the passive ones. While a passively managed fund or passive index fund is designed to resemble a broader market index and performance similar to it, funds that are actively managed seek to deliver profits higher than the industry barometer, which the fund is designed to beat. In this process, active funds are more exposed to volatility.
Buy These 5 Best Passive U.S. Equity Mutual Funds
As discussed, record inflows in passive domestic mutual funds indicated that this particular fund category is clearly expected to get more attention from investors. Banking on this encouraging backdrop, we have selected five passive U.S. equity mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging one, three and five-yearannualized returns. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Fidelity 500 Index Investor invests the majority of its assets in common stocks of companies included in the S&P 500 index, which largely signifies the performance of common stocks that are publicly traded in the United States.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 17%, 11.8% and 14.4%, respectively. FUSEX has an annual expense ratio of 0.09%, which is below the category average of 1.01%.
Vanguard Growth and Income Fund Investor Shares (VQNPX - Free Report) invests in a diversified group of stocks chosen with the help of quantitative analysis. VQNPX seeks stocks that are believed to provide dividend income, have an impressive growth prospect and, as a group, are likely to provide higher returns than the S&P 500 Index while having similar risk characteristics. The fund invests a minimum of 65% of its assets in companies included in the index.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 16.8%, 11.7% and 14.5%, respectively. VQNPX has an annual expense ratio of 0.34%, which is below the category average of 1.01%.
Vanguard Growth Index Investor (VIGRX - Free Report) seeks long-term capital growth by investing in equity securities of large-cap companies. VIGRX employs an indexing investment approach. The fund aims to track the performance of the CRSP US Large Cap Growth Index by investing most of its assets in stocks that make up the index.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 23.3%, 12.3% and 15.4%, respectively. VIGRX has an annual expense ratio of 0.17%, which is below the category average of 1.12%.
Fidelity Large Cap Growth Enhanced Index seeks appreciation of capital. FLGEX invests a large chunk of its assets in common stocks of large-cap companies included on the Russell 1000 Growth Index.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 23.6%, 12.9% and 16.2%, respectively. FLGEX has an annual expense ratio of 0.45%, which is below the category average of 1.12%.
Goldman Sachs Large Cap Value Insights A (GCVAX - Free Report) invests heavily in securities of large-cap companies, which have market capitalization within the range of the Russell 1000 Index. GCVAX seeks long-term appreciation of capital and dividend income. It invests in securities of domestic and foreign companies that are traded in the United States. The fund may also invest in fixed-income securities.
This fund has a history of positive total returns for over 10 years. Specifically, the fund's returns over the one, three and five-year benchmarks are 11.5%, 9.2% and 12.8%, respectively. GCVAX has an annual expense ratio of 0.96%, which is below the category average of 1.05%.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>