The number of mutual funds globally hit 138,000 in 2022, leaving investors swimming in a sea of options. Yet, a quick glance reveals that most of these funds don’t warrant a second look.
[Sign up for stock news with our Invested newsletter.]
The conundrum often lies in discerning the value for the fees you pay. High fees can only be rationalized if a fund has consistently demonstrated an ability to outperform its benchmarks over the long haul.
This brings us to a central debate in the investing world: the battle between active and passive investment strategies. While active managers aim to harness their expertise to outperform market benchmarks like the S&P 500, their passive counterparts take a simple approach: tracking the performance of indices such as the S&P 500 or Nasdaq Composite. If you can’t beat them, join them.
Passive funds charge very low fees, whereas many active funds have expense ratios that surpass the 1% mark. And the sobering reality is that fewer than 10% of mutual funds outperform the S&P 500 over a decade, according to S&P Dow Jones.
While passive funds are right for most investors, a few niche active managers validate their fees by consistently delivering superior performance.
This article will highlight nine of the best-performing 401(k) funds from the past decade, featuring a mix of active and passive funds that span various investment strategies. There’s likely a fund for every investor on this list.
| Fund | Expense ratio | 10-year average return |
| Fidelity 500 Index Fund (ticker: FXAIX) | 0.015% | 11.9% |
| Fidelity Nasdaq Composite Index Fund (FNCMX) | 0.30% | 14.4% |
| Baron Partners Fund (BPTRX) | 1.69% | 19% |
| Fidelity Growth Discovery Fund (FDSVX) | 0.83% | 14.1% |
| Columbia Seligman Technology and Information (SLMCX) | 1.20% | 18.1% |
| Fidelity Select Semiconductors Portfolio (FSELX) | 0.69% | 25% |
| Fidelity Capital & Income Fund (FAGIX) | 0.72% | 6% |
| Parnassus Value Equity Fund Investor Shares (PARWX) | 0.88% | 12.5% |
| T. Rowe Price Global Stock Fund (PRGSX) | 0.82% | 11.8% |
Fidelity 500 Index Fund (FXAIX)
Net expense ratio:
0.015% 10-year average return: 11.9%
The Fidelity 500 Index Fund is a plain-vanilla index fund that tracks the performance of the S&P 500, a benchmark comprising 500 of the largest U.S.-based companies. Despite its boring stature as a passive index fund, FXAIX has consistently outshined most active fund managers over the last 10 years while sporting a remarkably low expense ratio of 0.015%.
FXAIX comes in first on this list despite the fact that it lagged behind the returns of some of the more aggressive funds. Plenty of these funds have eclipsed FXAIX’s returns over the last 10 years, but many did so while taking more risk and leaving no guarantee that those risks will pay off for the next 10 years.
Exposure to large-cap U.S. equities is a cornerstone of most portfolios and FXAIX provides that at minimal cost. Without a compelling reason to do otherwise, low-cost index funds are typically the best choice for equity exposure because they’re much cheaper, and most active fund managers fail to outperform the S&P 500 over a long period anyhow.
With a five-star rating from mutual fund rating service Morningstar, FXAIX is the no-brainer choice for 401(k) investors looking for an S&P 500 index fund.
Fidelity Nasdaq Composite Index Fund (FNCMX)
Net expense ratio: 0.30% 10-year average return: 14.4%
The Fidelity Nasdaq Composite Index Fund is like the sister fund to the Fidelity 500, the difference being that FNCMX tracks the performance of the Nasdaq composite. While both indexes track the performance of large-cap U.S. stocks, the Nasdaq composite is more heavily weighted toward the technology sector.
The tech-heavy composition makes the Nasdaq composite a more aggressive play. As tech firms generally chase growth, this index tends to be more sensitive to market shifts. If the S&P 500 declines by 1%, it’s not abnormal to see the Nasdaq composite slip by 1.5%.
The higher risk level of the fund makes it ideal for younger investors, who have plenty of time before retirement to ride out market drawdowns while seeking to maximize returns. As tech giants dominated the market over the last decade, FNCMX has been a home run, averaging a 14.4% compound annual growth rate, or CAGR. The fund has managed to outperform many high-fee actively managed funds over the same period.
With an expense ratio of 0.30%, FNCMX is one of the cheapest options to get some growth stock exposure, with some of the fund’s top holdings being Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN) and Nvidia Corp. (NVDA).
Baron Partners Fund (BPTRX)
Net expense ratio: 1.69% 10-year average return: 19%
Managed by billionaire investor Ron Baron, the Baron Partners Fund is a high-growth stock fund known for its bold and concentrated positions. Baron’s aggressive strategy is evident in the fund’s composition: It holds 40% of its assets in Tesla Inc. (TSLA) stock and an additional 8.5% in a private SpaceX investment. Elon Musk skeptics should probably skip this fund.
Despite the fund’s more speculative nature, it has had an impressive track record, topping many mutual fund performance charts, with its 10-year CAGR clocking in at 19%, and nearly 15% annually since its 1992 inception.
History suggests the performance could continue, but not without significant whipsaws. Its concentration in high-volatility stocks like Tesla means it takes a bigger hit from market declines. For instance, in 2008, it plunged by 46.6%, steeper than the S&P 500’s 37% decline. On the other hand, it skyrocketed by 148% in 2020, destroying the S&P 500’s 18% gain.
While Baron has a long-term track record on his side, the fund’s current portfolio relies on Tesla continuing to defy the odds and post market-leading returns, even at a gargantuan $630 billion market cap.
Given its volatile nature and 1.69% net expense ratio, the Baron Partners Fund is best reserved for a small, more speculative portion of an investor’s portfolio.
Fidelity Growth Discovery Fund (FDSVX)
Net expense ratio: 0.83% 10-year average return: 14.1%
With roots tracing back to the renowned Fidelity Contrafund, the Fidelity Growth Discovery Fund has a straightforward strategy: find high-quality stocks with rapid earnings growth at reasonable valuations, similar to the growth at a reasonable price (GARP) investing philosophy.
The fund’s philosophy of avoiding companies with unreasonably high valuations safeguards it from the heavier drawdowns seen in more speculative growth-focused funds, earning the fund a neutral risk rating from Morningstar, the same rating as the Fidelity 500.
While primarily focused on U.S. stocks including top holdings Nvidia and Apple, the fund is willing to scour the globe for high-growth opportunities, holding investments in various international markets like Taiwan, the Netherlands and India.
Currently managed by Fidelity portfolio managers Jason L. Weiner and Asher Anolic, the fund has a stellar long-term track record for outperformance. Since its 1998 inception, the fund has posted an average return of 9.5%, easily beating its benchmark, the Russell 3000 Growth Index, which has posted 7.7% annualized gains over the same period.
With a net expense ratio of 0.83%, the fund is cheaper than many of its alternatives, making it worth a look for investors looking to add exposure to blue-chip growth stocks.
Columbia Seligman Technology and Information (SLMCX)
Net expense ratio: 1.20% 10-year average return: 18.1%
The Columbia Seligman Technology and Information Fund has seen huge success in picking tech stocks over the last decade, boasting a 10-year average return of 18.1%.
The fund is guided by a philosophy that emphasizes growth at a reasonable price, steering the fund clear of the barrage of overvalued tech stocks in recent years. This means the fund outperformed its benchmark during the bloodbath for tech stocks in 2022, declining 31% while the S&P North American Tech Index declined 35%.
While the fund has missed out on some winners over the years, its long-term track record — an average return of 14% since its inception in 1983 — speaks for itself. At the core of the fund’s portfolio are blue-chip stocks like Apple, Broadcom Inc. (AVGO) and Lam Research Corp. (LRCX), all of which possess forward price-to-earnings ratios comfortably below 30.
But the fund’s stellar returns come at a price. Its 1.20% expense ratio is on the higher end of the cost spectrum for actively managed mutual funds. Investors should compare SLMCX to lower-cost alternatives in the tech sector before considering a position.
[7 Best Funds to Hold in a Roth IRA]
Fidelity Select Semiconductors Portfolio (FSELX)
Net expense ratio: 0.69% 10-year average return: 25%
The last decade has been meteoric for the semiconductor industry. Between the mobile revolution, the explosion of cloud-computing and the emergence of the Internet of Things, global demand for computer chips has skyrocketed. The rapid rise of artificial intelligence, propelled by tools like ChatGPT, suggests the trend can continue over the next decade.
The Fidelity Select Semiconductors Portfolio is an alluring fund to play the trend, ranking as one of the best-performing mutual funds of the decade, posting an average annual return of 26.8%. Portfolio manager Adam Benjamin’s job is to pick the semiconductor industry’s biggest winners, focusing on buying companies with superior earnings growth and advantageous market positions.
Some of the fund’s top holdings are household names like Nvidia and NXP Semiconductors NV (NXPI), but Benjamin isn’t afraid to invest in new upstarts like Aeva Technologies Inc. (AEVA) or venture outside of the U.S., with 5% of the fund’s assets invested in Taiwan.
However, conservative investors should approach with caution. The semiconductor industry is highly cyclical, often experiencing sharp price whipsaws dictated by the ebb and flow of global chip supply and demand. This makes FSELX a compelling choice for younger investors who can afford to ride out significant drawdowns.
Fidelity Capital & Income Fund (FAGIX)
Net expense ratio: 0.72% 10-year average return: 6%
For investors looking to add to the fixed-income segment of their portfolios, the Fidelity Capital & Income Fund is one of the best-performing fixed-income mutual funds. Although its returns can’t compare to those of high-flying growth stock funds, its average 10-year return of 6% is an impressive track record for fixed income.
The fund, actively managed by Brian S. Chang and Mark J. Notkin, focuses on the high-yield bond market, or “junk bonds.” These bonds, predominantly rated BB or B, are typically issued by troubled corporate issuers or sit at a disadvantageous position in a company’s capital structure. While carrying a higher risk of default, investors are compensated with higher interest rates.
Investors shouldn’t be overly concerned with the term “junk.” FAGIX’s diversified portfolio ensures that a singular bond default doesn’t send shockwaves through the fund’s overall performance. Through the end of September, the fund held more than 800 securities from 487 different issuers in different sectors.
Given fixed income’s pivotal role as a building block of a balanced portfolio, investors might consider carving out a portion of their bond allocation to FAGIX, given its compelling balance of risk and return.
Parnassus Value Equity Fund Investor Shares (PARWX)
Net expense ratio: 0.88% 10-year average return: 12.5%
The Parnassus Value Equity Fund is one of the best-performing value-oriented mutual funds in the stock market. The fund employs a classic value style, investing in high-quality compounders that currently trade at low valuations relative to peers.
Some of its biggest holdings are Verizon Communications Inc. (VZ), Oracle Corp. (ORCL) and Progressive Corp. (PGR), all of which are long-term compounders, rather than distressed “deep value” companies in declining industries, a strategy which Parnassus avoids.
PARWX’s 10-year average return of 12.5% is especially impressive given the fact that value stocks have significantly underperformed growth stocks over the last decade. Parnassus does charge a net expense ratio of 0.88% to run the portfolio, which while high compared to passive index funds, is quite reasonable for an actively managed fund with good performance.
Investors looking to add value stocks to their portfolio should consider PARWX, as the fund has more than justified its fees by significantly outperforming other value funds and benchmarks over the last decade.
T. Rowe Price Global Stock Fund (PRGSX)
Net expense ratio: 0.82% 10-year average return: 11.8%
The U.S. stock market has maintained its crown as a juggernaut for decades, thanks to its status as the world’s largest economy. However, international markets hold the key to many overlooked growth opportunities and the persistence of U.S. dominance suggests the globe is due for some mean reversion.
The T. Rowe Price Global Stock Fund positions investors to harness the growth of international stocks while keeping a foundational exposure to U.S. stocks. The fund allocates approximately 40% of its assets to markets like Japan, the United Kingdom and Germany, with the rest in U.S. stocks.
This blended exposure approach has proven fruitful. Clocking a 10-year average return of 11.8%, PRGSX ranks among the top international mutual funds. For investors eyeing regional diversification in their portfolios, PRGSX is worth a glance, despite its 0.82% net expense ratio.
More from U.S. News
Brokerage Account vs. IRA: Which Should You Invest In?
7 Clean Energy ETFs to Buy Now
10 of the Best-Performing 401(k) Funds originally appeared on usnews.com
Update 10/31/23: This story was previously published at an earlier date and has been updated with new information.
