Retirement investors face a challenging conundrum when choosing the best 401(k) funds: how to discern 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.
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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 indexes 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 U.S. mutual funds outperform the broader U.S. equity market over a decade, according to S&P Dow Jones.
While passive funds are a good fit for many investors, a few niche active managers validate their fees by consistently delivering superior performance.
We took a look at eight of the best-performing 401(k) funds from the past decade, featuring a mix of active and passive funds that span various investment strategies. This list could easily comprise only technology funds, given the sector’s dominance over the past decade. But for the sake of diversification, we included the top-performing large-cap, mid-cap and small-cap funds, too.
Note that mutual funds come in different share classes. When you invest outside of your 401(k) plan, you use the investor share class, whereas within your 401(k) plan, you’ll have access to the institutional share class. The institutional classes come with different ticker symbols and often lower expense ratios, but will have the same portfolio.
| 401(k) Fund | Expense Ratio | 10-Year Average Return |
| Fidelity Advisor Semiconductors I (ticker: FELIX) | 0.7% | 25.9% |
| Fidelity Advisor Technology Fund (FATIX) | 0.68% | 21.8% |
| Putnam Global Technology Fund (PGTYX) | 0.86% | 20.4% |
| Vanguard Information Technology Index Fund (VITAX) | 0.1% | 20.6% |
| Baron Partners Institutional Fund (BPTIX) | 1.04% | 19.1% |
| Fidelity Advisor Growth Opportunities Fund (FAGCX) | 0.44% | 18.3% |
| Baron Focused Growth Fund (BFGIX) | 1.06% | 17.2% |
| Kinetics Small Cap Opportunities Institutional (KSCYX) | 1.44% | 15.2% |
Fidelity Advisor Semiconductors Fund (FELIX)
Net expense ratio: 0.7% 10-year average return: 25.9%
Topping the list of the best-performing 401(k) funds is a fund that also happens to be ranked the No. 1 technology fund by U.S. News & World Report. Morningstar also gives it five stars and a gold badge, indicating the analysts are confident it will continue outperforming over the coming market cycle on a risk-adjusted basis.
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. It’s no surprise then that a semiconductors fund would continue to top the list of best-performing 401(k) funds, as it has for the past year.
The Fidelity Advisor Semiconductors fund is an alluring fund to play the trend, ranking as one of the best-performing mutual funds of the decade with an average annual return of 25.9%.
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 FELIX a compelling choice for younger investors who can afford to ride out significant drawdowns.
Fidelity Advisor Technology Fund I (FATIX)
Net expense ratio: 0.68% 10-year average return: 21.8%
Semiconductors aren’t the only segment of the technology industry that has done well recently. The entire tech industry has been on a tear, as evidenced by the second best-performing 401(k) fund on this list: FATIX.
The fund invests in companies that produce or will produce products or services that either provide or benefit from technological advances, such as Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA).
Its portfolio of 93 holdings is quite concentrated, with over 71% of assets in the top 10 names and nearly 90% in the top 20. Nvidia alone accounts for more than one-fifth of the portfolio. So if you buy this fund, double check you’re not doubling down on the same names elsewhere in your portfolio to avoid overconcentration risk.
FATIX also gets five stars and a bronze badge from Morningstar. The bronze badge indicates the analysts are confident it will outperform — just not as confident as they are with silver or gold medal funds.
Putnam Global Technology Fund (PGTYX)
Net expense ratio: 0.86% 10-year average return: 20.4%
Despite branding itself as a global technology fund, over 80% of PGTYX’s assets are in the U.S. But an 80-20 split can be a suitable ratio of domestic-to-international exposure for many U.S. investors.
The fund invests in both emerging and established companies that the managers believe will benefit from technological advancements and disruptions.
PGTYX inches ahead of other global technology funds in terms of 10-year performance, but Morningstar analysts are not optimistic about its future. It gets four stars but a negative medal rating, indicating the analysts aren’t confident it will continue to outperform.
PGTYX is considered “very aggressive” by Morningstar, so if you’re not prepared for a bumpy ride, this likely isn’t the fund for you. However, it’s still below-average risk relative to the technology category overall.
Vanguard Information Technology Index Fund (VITAX)
Net expense ratio: 0.1% 10-year average return: 20.6%
Here’s an example of a passive tech fund that’s well worth considering. The Vanguard Information Technology Index can operate on a low 0.1% expense ratio by tracking a U.S. information technology index. The high 20.7% 10-year return proves that just jumping on the tech bandwagon is enough to benefit from the industry’s growth.
The fund holds more than 300 stocks across 12 technology subsectors, from semiconductors to technology distributors. Top names include ones you’re likely familiar with, including Apple, Nvidia and Microsoft. But you’ll also encounter some lesser-known companies, like Dublin-based Accenture PLC (ACN). This makes VITAX a solid, all-around information technology fund for your 401(k).
Morningstar is also fairly bullish on the fund. The analysts give it five stars and a bronze badge. It also gets five out of five globes for sustainability.
[READ: 7 Best International Dividend Stocks for Diversification]
Baron Partners Institutional Fund (BPTIX)
Net expense ratio: 1.04% 10-year average return: 19.1%
Here at last: a top-performing 401(k) fund that isn’t a tech fund. In fact, over half the fund is in consumer discretionary stocks with information technology only representing 6.4% of the portfolio.
Managed by billionaire investor Ron Baron, the Baron Partners Fund is a growth stock fund known for its bold and concentrated positions. Baron’s aggressive strategy is evident in the fund’s composition: It holds nearly 40% of its assets in Tesla Inc. (TSLA) stock. But the managers come right out and say it’s a “nondiversified” 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 trailing returns clocking in at 19.1%, 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 2022, it plunged by 42.4%, considerably steeper than the Russell Midcap Growth Index’s 26.7% decline. On the other hand, it skyrocketed by over 149% in 2020, destroying the Russell Midcap Growth Index’s 35.6% gain.
Given its volatile nature and 1.04% net expense ratio, the Baron Partners Fund is best reserved for a small, more speculative portion of your portfolio. Don’t pin your entire retirement on this one in case you end up retiring in a 2022-type year rather than a 2020 one.
Fidelity Advisor Growth Opportunities Fund (FAGCX)
Net expense ratio: 0.44% 10-year average return: 18.3%
For a considerably less expensive top-performing large-cap fund, Fidelity’s got you covered.
The Fidelity Advisor Growth Opportunities Fund does as the name suggests: It looks for companies the fund managers feel have above-average growth potential. This means the fund seeks capital appreciation, rather than income, which can be a good objective for retirement investors with long time horizons.
It achieves this objective with a portfolio of nearly 200 growth companies, about half of which are information technology firms. This shouldn’t be surprising given the rise of these companies over the past decade.
The fund also invests nearly 20% of its assets in communication services, 12% in consumer discretionary firms and just over 7% in financial companies. So, you do get some diversification here. This means you’ll find names like entertainment company Roku Inc. (ROKU) and pharmaceutical company Eli Lilly & Co. (LLY) alongside Nvidia and Microsoft in the top 10 names.
Baron Focused Growth Fund (BFGIX)
Net expense ratio: 1.06% 10-year average return: 17.2%
The Barons haven’t only been dominating the large-cap growth space: their mid-cap offering, BFGIX, is also the top-performing mid-cap 401(k) fund over the past decade.
Just like its large-cap brother, BPTIX, this fund is a high-conviction, nondiversified growth fund. The difference is that while BPTIX may invest in companies of all sizes (it’s just choosing to invest primarily in large-cap growth stocks right now), the Baron Focused Growth Fund invests primarily in the small- and mid-cap space.
Ironically, its portfolio is also dominated by Tesla, although to a lesser degree. The tech stock makes up just under 11% of this portfolio, but is the top contributor to both funds’ performance. Both portfolios are dominated by consumer discretionary stocks, but again, to a lesser degree in this fund. You’re looking at less than 40% consumer discretionary here. So technically speaking, this is the more diversified fund. But that could change with the whims of the managers, so it’s still best to keep this one a small part of your portfolio.
Kinetics Small Cap Opportunities Institutional (KSCYX)
Net expense ratio: 1.44% 10-year average return: 15.2%
Climbing up the price ladder but down the size ladder, next comes the top-performing small-cap 401(k) fund. At a 1.44% expense ratio, this is the most expensive fund on the list. And given the stellar performance of the cheaper funds that came before it, it may not be worth its price.
That said, Morningstar gives it five stars and a silver badge, indicating analysts believe it will remain a top-performing small-cap fund over at least the next market cycle.
While the fund falls into the small growth category on Morningstar, it’s actually intended to be a small-cap value fund. The managers look for “fundamentally undervalued companies” with the goal of creating a concentrated portfolio of stocks “with the potential to expand to higher valuations.” They also look for companies with significant barriers to entry to help ensure their picks remain at the top of their fields.
A key word in that previous paragraph is “concentrated.” Over half of fund assets are invested in Dallas-based real estate company Texas Pacific Land Corp. (TPL). This results in over 82% of the portfolio in the top 10 holdings alone. So while there are 49 stocks in the fund, you’re really investing in the main components.
This high level of concentration plus the hefty expense ratio put KSCYX in the same category as the Baron funds above: Invest with caution.
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8 of the Best Performing 401(k) Funds of the Past Decade originally appeared on usnews.com
Update 12/27/24: This story was previously published at an earlier date and has been updated with new information.
