12 Cheap Funds With Solid Track Records

Index funds are some of the most inexpensive investing products on the market. Because they track a common benchmark like the S&P 500 or the Russell 2000, these funds don’t need to pay for analysts, research or a manager who picks stocks every day. The savings are passed along to shareholders under the guise of low annual expense ratios – some less than $20 for every $10,000 invested.

But index offerings aren’t the only low-cost option in the mutual fund world. Among the more than five dozen fund categories Lipper tracks, hundreds charge below-average fees—and some have good track records and managers, too.

Of course, the opposite situation also applies: It’s very easy to find overpriced, poorly performing funds.

We are going to leave the expensive, weak funds for another day and instead concentrate on the industry’s cheapest offerings that also happen to be good performers. We started building this screen by looking for funds that had annual expense ratios that were in the lowest 15% of their respective classifications. We narrowed the field by giving weight to performance over the trailing year-to-date and three- and five-year time periods. The table below features 12 funds from many different categories.

Investors are wise to focus on fees when buying mutual funds. An extra 0.50% expense ratio can cost a retirement account thousands of dollars over its life, depending on the balance.

However, low fees shouldn’t be the singular reason for investing in a particular fund. For example, we wouldn’t suggest investors scoop up shares of an aggressive offering simply because the fees are cheap.

A note about the construction of this screen: We could have performed it by simply searching for the lowest annual expense ratios, regardless of category. That would have left us with a lineup of S&P 500 index funds. Our approach compares a given fund’s annual expense ratio vs. competitors in that same category. By using this method, we get a wider swath of cheap funds.

If you look closely at the table, you will notice that low fees tend to coincide with larger asset bases. Fund families usually reduce their fees according to a schedule as assets increase.

The Criteria: The funds on our table have annual expense ratios that are in the bottom 25% of their respective categories. They also have performance track records over the trailing three- and five-year time periods that put them in the top 15% of those same groups. Their year-to-date returns are better than that of the S&P 500, and they are open to new money and require a minimum investment under $5,000.