The Best Core Stock Funds
These mutual funds and ETFs blend growth and value large-cap stocks and earn Morningstar Analyst Ratings of Gold.
A black dress (little or otherwise) is a versatile wardrobe staple for many women. Long-handled tongs and a good meat thermometer are must-owns for grilling enthusiasts. And The Joshua Tree and Slippery When Wet were essential albums for teenagers in the mid-1980s (well, at least they were for this teen in those days).
When it comes to long-term investing, stocks of large U.S. companies play a similar role: They are the essential investments we build our portfolios around. Specifically, funds in the U.S. large-cap blend Morningstar Category are about as “core” as you can get, as they combine stocks with both growth and value characteristics. Indeed, they’re the black dress of most long-term-focused portfolios.
There are many fine U.S. large-blend funds to choose from. Today, we’re focusing on those funds that have at least one share class that earns a Morningstar Analyst Rating of Gold. (We expect such highly rated funds to outperform over a full market cycle; learn more about our Analyst Ratings.) They’re great starting points for your research.
Many of the highest-rated funds in the category take a passive approach to investing. Passive funds aren’t actively trying to beat the market through stock selection; instead, they’re indexing the market in an effort to match its performance, minus their expenses. Why do so many passive funds earn Gold ratings in this category? Morningstar research has shown that in this part of the market, most active managers haven’t added much value over their respective indexes. Low-cost index funds are therefore terrific options here.
There’s some variety among passive strategies in the large-blend category. Some funds in the group--including Fidelity 500 Index (FXAIX), iShares Core S&P 500 ETF (IVV), and T. Rowe Price Equity Index 500 (PRUIX)--track the S&P 500. As a result, they provide access to large-cap stocks representing about 80% of the U.S. stock market. Meanwhile, Vanguard Large-Cap ETF (VV) focuses on the CRSP U.S. Large Cap Index, which includes more companies with smaller market caps.
Other passive funds on the list on the list--such as Schwab U.S. Broad Market ETF (SCHB) and Vanguard Total Stock Market (VITSX) (VTI)--follow much broader market indexes that include more stocks, some of which are smaller-cap names. While these funds also land in the large-blend category, they expose investors to a wider pool of stocks and market caps.
Although managers who actively pick stocks as a group have struggled to add value in this part of the market, some have proven that they can in fact outperform. Our analysts believe that the Gold-rated actively managed funds in the large-blend category have competitive advantages that will allow them to continue to outperform over a full market cycle.
When it comes to active managers on the list, strategies can vastly differ. The managers at FMI Large Cap (FMIHX), for instance, maintain a compact portfolio of 20-30 stocks that they deem undervalued; the team at American Funds Washington Mutual (AWSHX) owns 6 times as many stocks and focuses on dividend-paying names.
To fully understand a fund’s strategy, be sure to read its Morningstar Fund Analyst Report.
Susan Dziubinski has a position in the following securities mentioned above: VPCCX. Find out about Morningstar’s editorial policies.