Best US Stock Market Total Funds

various indices

This column follows “The Best S&P 500 Funds” from last month.

The challenge for that article was to winnow the field. Several dozen mutual funds and exchange-traded funds have “500” in their names, but the vast majority invest in a subset of the S&P 500 or are available only to institutions. However, once the right funds were identified, ranking them was easy, because they all mimicked the same benchmark.

The same is not true of funds that buy the entire US stock market. Although the Wilshire 5000 Index was once the industry’s total market standard, invariably cited when researchers searched for the broader US equity benchmark, that no longer holds. In fact, of the total of nine stock market index funds with 10-year track records (retail funds only, cheapest share class), none claim the Wilshire 5000 Index as their benchmark.

It turns out that the choice of index has not mattered much. During the 10 years from January 2012 to December 2021, only 6 basis points separated the leader from the laggard.

Taking into account returns

Since no one knows where those indices will fare over the next decade, I won’t judge the nine fund contenders by the benchmarks they emulate. Instead, the first item in this article’s three-part scoring system is the 10-year total returns. Admittedly, that signal is messy, as it conflates reliable information (fund costs) with history mishaps (which index performed best and the direction of fund tracking errors). But at least some credit should be given for achievements.

The total return spread of the nine funds, which consists of four mutual funds and five ETFs, is considerably larger than the spread of the indices they mimic. This divergence occurs in part because the funds charge different expense ratios and in part because the funds deviate from their benchmarks.

Ultimately, those last two factors determined how the funds ended up. Thus, while the Russell 3000 Index posted the second-highest return among the five benchmarks, the two Russell 3000 Index funds landed near the bottom. In contrast, the Dow Jones US Stock Market Index lagged behind among the indices, but was selected by the Fidelity Total Market Index. (FSKAX), which tied for the third best gain. More evidence that investors need not worry about what benchmark a total market fund adopts.

Track bugs and costs

While the major S&P 500 funds match their indices almost exactly, total stock market funds are less accurate. Tracking error is therefore a bigger problem. To be sure, since tracking error works both ways, being as likely to increase a fund’s return as it is to decrease it, such errors do not necessarily hurt shareholders. Still, since index funds promise to mirror their ratios, it’s fair to penalize their deviations.

The chart below shows the average annual tracking error for each fund over the same 10-year period. It should be noted that although the two versions of the Vanguard Total Stock Market Index (the mutual fund’s Admiral share class (VTSAX) and its brother ETF (IVT)) appear to be identical, presenting the same 10-year yields and average tracking error, those funds are actually not the same. They typically post different total returns during each calendar year, and Admiral stock’s tracking error is slightly less.

The value of the third and final measure is indisputable: current expense ratios. The funds’ historical fees were included in their total returns, so I won’t double count costs when including them in this section. That said, all funds except for the iShares Russell 3000 ETF (IWV) has cut spending over the past decade, in some cases dramatically. That trend will undoubtedly continue, further narrowing the spending gap between winners and losers.

The six cheapest funds have similar costs, with fees rising for the two Russell 3000 Index participants, and then higher again for the T. Rowe Price Total Capital Market Index. (POMIX). As the latter’s expense ratio suggests, T. Rowe, unlike rival Fidelity, has steered clear of index fund price wars. However, the company has recognized the reality. Since 2109, he has cut the fund’s expense ratio from 0.30% to 0.22%.

The final table in this column brings together the components, ranking the funds along each of the three measures, and then adding those scores to arrive at an overall ranking.

company of three

A three-way tie, with the three best-known fund providers: Fidelity, Schwab and Vanguard. The fund market has allocated its money efficiently. Counting its Admiral and ETF versions, Vanguard’s offering is by far the largest of the US total market stock funds, with Fidelity Total Market Index a distant second. Only Schwab’s fund falls outside the top three, because while the company has huge brand recognition and $7 trillion in assets, most of that business is elsewhere. The company is not (yet) among the 10 largest fund companies.

The middle funds on the list follow closely behind. IShares Core S&P Total US Stock Market ETF (ITOT), from giant BlackRock, is close enough to the big three to be legitimate competition, and while the next two funds from Vanguard and Schwab can’t quite match what came before, they’re certainly decent holdings. Only the last three funds are not worth attention, unless one must own an investment in the Russell 3000 index or has a particular reason for doing business with T. Rowe Price.

zero fidelity

I would be remiss not to mention Fidelity Zero Total Market Index (FZROX), which follows the suggestion of its name by not charging any fees. Since the fund began operations in 2019, it does not qualify for the screens in this column. But given its nonexistent cost and the similarity of total stock fund indices (Fidelity’s fund uses an internal benchmark), Fidelity Zero is likely to outperform most rival US stock funds over time and well. could end up leading the pack.

John Rekenthaler (john.rekenthaler@morningstar.com) has been researching the fund industry since 1988. He is now a columnist for Morningstar.com and a member of Morningstar’s investment research department. John is quick to point out that while Morningstar generally agrees with the Rekenthaler Report’s views, his views are his own.

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