In her latest blog post released Wednesday, Morningstar investment analyst Susan Dziubinski discusses the surging popularity of index funds, noting that investors today are pouring money into U.S. stock index funds and pulling money out of actively managed ones.
Index funds that focus on international stocks and bonds are also gaining traction, Dziubinski writes.
Index funds are popular now, proponents maintain, because buying and holding the broad market produces better results than attempts to beat the market by actively selecting securities. Indeed, recent Morningstar research shows that in many investment categories, index funds have outperformed active funds over time.
Beyond that, Dziubinski says, index funds usually cost less than and are often more tax-friendly that similar active funds. Index funds perform like the markets they are tracking, mitigating the risk of performance surprises.
Another benefit index fund investors can depend on is not having to worry about “key-person risk,” since no manager is actively selecting securities for the vehicle.
Dziubinski advises investors who are looking for the best index ETFs and mutual funds to start with those that have earned a Morningstar Gold rating, which means that analysts consider them most likely to outperform over a full market cycle.
The U.S. stock equity index mutual funds and ETFs on her list also all land in one of the broad U.S. stock Morningstar categories, and have “Analyst Assigned %” scores equaling at least 80% as of June 7.
See the gallery for 12 of the best U.S. stock index mutual funds and ETFs, according to Morningstar. Check out the full list here.