There is no mutual fund company that will yield the highest return year after year due to the stochastic nature of the stock market. If there were, it would get quickly overwhelmed with customers and put all of its competitors out of business, or be mimicked in such as a way that all its competitors would do equally well. In any case, the best mutual fund companies must be measured by some other, more meaningful metric.
The Best Criteria for Picking the Best Mutual Fund Company
The metrics that are most often used for assessing what is the best or a good mutual fund company are total asset size, most diverse funds, most balanced in terms of offerings, and lowest fees. Furthermore, one company might be very good with a particular instrument type but not with others. For example, the best money market mutual fund rates will belong to a company that does not have the best international stock mutual fund rates.
Try Largest by Asset First
Given this, one thing that seems to be true is that looking at merely the fund companies with the largest assets can give one a good idea of the mutual fund ecosystem. The companies with the most investors and customers are the ones that can afford to structure many different fund products, provide access to such products consistently, and also leverage their customer volume to lower fees. Finally, the largest mutual fund companies have been associated with good customer service, although this need not be uniformly true.
The Top Ten by Size
In terms of total assets, the top ten mutual fund companies are (in no specific order): The Vanguard Group, American Funds, Fidelity, Barclays Global Investors, Franklin Templeton Investments, Pimco Funds, T Rowe Price Investments, State Street Global Investors, Oppenheimer Funds, Dodge & Cox. Collectively these companies add up to 3.98 trillion dollars in 1998. For comparison America’s total GDP in 2008 was 14.6 trillion dollars.
Index and Non-index
Mutual funds come in two flavors: index and other. The index funds invest in a fixed list of companies, i.e. its index. Season after season, year after year, the fund keeps the right proportion of money in this list. The index funds are very popular as they have been shown to give excellent yield and rates when compared to other, more actively managed funds. What are the funds that are not index funds? These funds invest in a way indicated by the fund manager. In theory, the skill and experience of a fund manager should lift the yields above index funds. In practice, this is quite rare. Some 80% of actively managed funds lost out to index funds in recent years.
Smaller Fund Companies
What happens if you are interested in a small company? There are also a number of smaller mutual fund companies, some specializing in particular segments of the economy. To get a better understanding of these fund companies, many people turn to mutual fund research companies. One of these is Morningstar, which has a long history of studying mutual funds and rating them with its own proprietary 5 star system, as well as characterizing each fund in terms of a “Box diagram” which indicates the size and the riskiness of strategy for each fund.
Mutual Fund Resarch Companies
Morningstar and others use industry-specific terms to talk about the best mutual fund companies. For example, mutual funds are divided according to the types of companies in which they invest. One way to divide them is by the categories small cap, mid cap, and large cap. Here cap refers to the capitalization, or roughly, “size of the companies” that are in the portfolio of the fund. A small cap mutual fund therefore invests mainly in small companies. Another way to divide mutual funds is by value, blend, and growth. Growth refers to companies that are taking risks and expanding, whereas value refers to companies that are making a steady profit.