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Investing in Mutual Funds

A mutual fund is a financial asset that comprises money collected from many investors to invest in securities such as bonds, stocks and money markets. Professional money managers run mutual funds and decide how its funds will be invested. Those investments align with objectives stated in the mutual fund’s prospectus.

Individuals invest in mutual funds through existing investment accounts, directly from fund managers or via online brokerages. Often, employer-sponsored retirement accounts, such as a 401(k), invest in mutual funds. Investors can also buy directly from the fund manager, such as Vanguard or BlackRock. This path, however, may have limited choices. For the most flexibility when investing in mutual funds, individuals should leverage brokerages through which they can look up and buy shares of selected mutual funds.

Investors need to select the right mutual fund to maximize returns within risk toleration. Here, a few considerations arise: fund fees (the expense ratio), transaction fees and fund strategy. The expense ratio is an annual fee paid to the mutual fund’s manager. Expressed in percentage terms, it’s the ratio of your investment that goes toward the fund’s expenses rather than productive application. For example, a 1% expense ratio on a $10,000 investment amounts to $100 in fees every year.

Transaction fees are the amount billed to buy or sell mutual fund shares. These can range from $0 per transaction up to $20 per trade depending on the selected fund. Online brokers typically have no transaction fees for their own mutual funds but may well charge for investments in others. Be sure to check transaction fees before purchasing as they can eat into returns with active buying and selling.

The last, and most important, consideration when selecting the right mutual fund is its strategy. Mutual funds generally have an investment thesis that guides asset class allocation. There are four broad types of mutual funds: equity, fixed-income, money market and hybrid.

Equity, or growth, funds (including index funds) focus on capital appreciation and invest primarily in individual stocks. They may further refine their prospective to focus on growth or value stocks or specific sectors, believing they will outperform or provide investors with portfolio diversification. Index funds use pooled assets to buy shares that match or track a particular market index, such as the S&P 500 index. As with a typical asset allocation strategy, equity funds are generally better for investors with a long time horizon or high tolerance for risk.

Bond mutual funds invest in fixed-income securities. This typically includes government and corporate debt. The inherent stability in such debt lowers the potential for growth while providing predictable returns paid back to investors in fixed amounts. Investors nearing retirement often opt for such funds to protect their nest egg from market volatility.

Similarly, money-market mutual funds apply a fixed-income strategy by investing in high-quality, short-term debt from governments, banks or other corporations. Because the debt is so short-term, these are considered the safest investments. They offer the lowest returns.

Hybrid, or balanced, funds, as the name implies, combine equities with fixed-income investments in a specified asset ratio. Target-date funds, like those offered by Vanguard, take a hybrid approach that dynamically alters the asset allocation between equities and bonds based on time remaining to the identified date, such as retirement.

Various strategies entail more active or passive management. Generally, actively managed funds—those with high asset turnover, typically equity funds—have higher expense fees than passively managed mutual funds. Newly popular index funds, which provide investors stock exposure and diversification, have lower expense ratios than other equity funds because they remove elements of stock picking and have reduced portfolio turnover.

With each fund type, investors make money from a mutual fund through income generation, capital gains or net asset value appreciation. Income comes through dividend payments from equity or interest payments from bonds. Capital gains occur when a mutual fund sells a security that has gone up in price and then distributes that those gains to investors. Net asset value appreciation happens when the value of the fund increases, raising the price to purchase its shares. Of course, for both capital gains and net asset value, the opposite can occur: Funds can sell securities at a loss and see their own share prices decrease.

Mutual Fund Investing Strategies

Investors often wonder how many mutual funds they should invest in. AAII suggests no more than eight. That number allows for adequate diversification among asset classes and sufficient exposure to stocks and fixed-income securities. As with investing in ETFs or individual stocks, investors need to diversify their portfolio. That means selecting mutual funds that invest in large-, mid- and small-cap stocks, foreign equities and bonds of various durations.

Here’s one scenario AAII suggests for how investors could diversify a mutual fund portfolio (select one of each):

As mentioned, equity funds provide the highest rates of return. Performance within various equity classes varies year to year and with economic conditions. Index funds will nearly exactly match the performance of their modeled indexes. International and emerging stocks give exposure to foreign companies and developing nations, both of which—especially the latter—have the potential for dramatic growth in the right economic conditions.

Investing in ETFs

Many investors consider ETFs as an alternative to mutual funds because they may have similar strategies and returns but with lower expense ratios. Bought through brokerages, ETFs can be a good investment for those with a passive strategy. Similar to investing in mutual funds, selecting a few ETFs can provide needed diversification and proper asset allocation for risk tolerance and time horizon.

Investors should own a number of ETFs commensurate with their goals. Level I ETF investing, a simple approach that covers substantial investment ground, involves owning three ETFs. These ETFs would cover the broad U.S. market (this includes stocks of all market capitalization), international stocks and an intermediate-term government bond ETF.

Level II ETF investing still applies an index fund approach but ratchets up complexity for more granular control on asset allocation and diversification. There, investors may own up to 10 ETFs. These would cover the broader market, large-cap stocks, extended markets, mid-cap stocks, small-cap stocks, micro-cap stocks, the broader international stock market, emerging markets, intermediate-term U.S. government bonds and short- or long-term U.S. government bonds.

AAII Tools Aid in Fund Selection

Overall, mutual funds and ETFs provide valuable avenues for investors who want easy exposure to various sectors or asset classes and don’t want to pick individual stocks. You can use AAII’s proprietary tools to find the best mutual funds and ETFs for your investment goals. We offer specialized fund screeners and performance benchmarks so you can find the top mutual funds. All of these tools, and many more to help you become an experienced investor, can be yours for just $2 with a no-risk trial. Click below to get started!

Commentary ● August 1

Semiconductors Process Big Second-Quarter Gains

By AAII Staff

The top 25 and bottom 25 exchange-traded funds (ETFs) and mutual funds for the second quarter of 2026.

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First Cut Screens (32)
Fund Screener
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Fund Openings and Closings
Fund Openings/Closings (31)
Consistent Performers
Consistent Performers (1,566)
Top and Bottom Funds
Top & Bottom Funds
Commentary and Reports
Commentary & Reports
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Fund Insights
COMPARE MUTUAL FUNDS:
Guru Screens
Featured Fund First Cut ● See All Fund First Cuts

High-Yielding Equity Funds

No-Load equity funds open to new investors with yields above their category norm, accompanied by an expense ratio below the norm for their category and minimum initial purchase no higher than $10,000. Excludes institutional funds and special share classes.

Passing Funds Ranked By Yield

FUND NAME TICKER YIELD TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
GQG Partners US Quality Value Fund Inv GQHPX 3.0% F 0.92 0.93 B 0.64% B Large Value
Fidelity Equity Dividend Income FEQTX 2.6% C 0.94 0.95 B 0.53% B Large Value
Edgar Lomax Value LOMAX 2.5% C 0.92 0.92 B 0.69% B Large Value
Vanguard High Dividend Yield Index Adm VHYAX 2.3% C 0.92 0.93 B 0.08% A Large Value
Vanguard Equity-Income Inv VEIPX 2.1% D 0.91 0.91 B 0.26% A Large Value

See All 56 Funds

(Data as of 6/30/2026)

Top Bottom Funds

Top/Bottom Performing Funds

The best and worst performing mutual funds in key categories, updated monthly.

TOP FUNDS

FUND NAME TICKER 5-YR
ANNUAL
RETURN		 TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
True Rock Fund TRUEX 35.3% A 2.90 2.03 F 1.50% F Large Growth
Needham Aggressive Growth Retail NEAGX 22.7% A 2.07 1.26 F 1.64% F Small Growth
Oberweis Micro-Cap OBMCX 20.8% A 2.03 1.24 F 1.46% F Small Growth
Auer Growth AUERX 19.7% A 1.35 0.90 A 2.05% F Small Value
Invesco Value Opportunities Y VVOIX 19.6% A 1.35 1.12 F 0.77% C Mid-Cap Value

See Top 100 Funds

BOTTOM FUNDS

FUND NAME TICKER 5-YR
ANNUAL
RETURN		 TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
Morgan Stanley Inst Inception C MSCOX (10.2%) F 2.61 1.59 F 2.10% F Small Growth
Jacob Small Cap Growth Investor JSCGX (9.8%) F 2.60 1.58 F 3.22% F Small Growth
Morgan Stanley Inst Inception A MSSMX (9.5%) F 2.61 1.59 F 1.35% D Small Growth
Morgan Stanley Inst Discovery C MSMFX (7%) F 2.39 1.57 F 1.78% F Mid-Cap Growth
Virtus KAR Small-Cap Growth A PSGAX (7%) F 1.57 0.95 B 1.39% F Small Growth

See Bottom 100 Funds

(Data as of 6/30/2026)


TOP FUNDS

FUND NAME TICKER 5-YR
ANNUAL
RETURN		 TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
Nomura Emerging Markets R6 DEMZX 28.6% A 3.04 2.27 F 1.06% D Diversified Emerging Mkts
Nomura Emerging Markets Instl DEMIX 28.5% A 3.04 2.27 F 1.15% D Diversified Emerging Mkts
Nomura Emerging Markets A DEMAX 28.2% A 3.04 2.27 F 1.40% F Diversified Emerging Mkts
Nomura Emerging Markets R DEMRX 27.8% A 3.04 2.27 F 1.65% F Diversified Emerging Mkts
Nomura Emerging Markets C DEMCX 27.2% A 3.03 2.26 F 2.15% F Diversified Emerging Mkts

See Top 100 Funds

BOTTOM FUNDS

FUND NAME TICKER 5-YR
ANNUAL
RETURN		 TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
Columbia Greater China A NGCAX (12.5%) F 1.81 1.01 C 1.49% F Greater China Region
Columbia Greater China Inst LNGZX (12.2%) F 1.81 1.01 C 1.24% D Greater China Region
Morgan Stanley Global Endurance C MSJCX (8.4%) F 1.79 1.30 F 2.10% F Global Small/Mid Stock
Morgan Stanley Global Endurance A MSJAX (7.7%) F 1.79 1.30 F 1.35% D Global Small/Mid Stock
Guinness Atkinson China & Hong Kong ICHKX (7.7%) F 1.91 1.07 D 1.86% F Greater China Region

See Bottom 100 Funds

(Data as of 6/30/2026)


TOP FUNDS

FUND NAME TICKER 5-YR
ANNUAL
RETURN		 TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
Fidelity Advisor Semiconductors Z FIKGX 41.0% A 2.71 1.36 F 0.57% B Technology
Fidelity Advisor Semiconductors I FELIX 40.9% A 2.71 1.36 F 0.69% B Technology
Fidelity Select Semiconductors FSELX 40.7% A 2.72 1.36 F 0.60% B Technology
Fidelity Advisor Semiconductors A FELAX 40.5% A 2.70 1.36 F 0.94% C Technology
Fidelity Advisor Semiconductors M FELTX 40.2% A 2.70 1.36 F 1.19% D Technology

See Top 100 Funds

BOTTOM FUNDS

FUND NAME TICKER 5-YR
ANNUAL
RETURN		 TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
Firsthand Technology Opportunities TEFQX (18.3%) F 2.70 1.35 F 1.85% F Technology
Jacob Internet Inv JAMFX (11.9%) F 2.56 1.28 F 2.38% F Technology
American Beacon ARK Transfmt Innov C ADNCX (8.9%) F 3.27 1.64 F 2.16% F Technology
American Beacon ARK Transfmt Innov A ADNAX (8.2%) F 3.27 1.64 F 1.40% F Technology
American Beacon ARK Transfmt Innov Inv ADNPX (8.1%) F 3.27 1.64 F 1.38% F Technology

See Bottom 100 Funds

(Data as of 6/30/2026)


TOP FUNDS

FUND NAME TICKER 5-YR
ANNUAL
RETURN		 TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
Eaton Vance Glbl Macro Abs Ret Advtg A EGRAX 8.6% A 0.39 1.32 F 2.47% F Nontraditional Bond
American Beacon DevelopingWldIncFd-ACl AGUAX 8.4% A 0.43 0.84 A 1.36% D Emerging Markets Bond
American Beacon DevelopingWldIncFd-InvCl AGEPX 8.4% A 0.43 0.84 A 1.33% D Emerging Markets Bond
Eaton Vance Emerging Markets Dbt Opps A EADOX 8.4% A 0.38 0.74 A 1.06% D Emerging Markets Bond
Eaton Vance Glbl Macro Abs Ret Advtg R EGRRX 8.3% A 0.39 1.32 F 2.72% F Nontraditional Bond

See Top 100 Funds

BOTTOM FUNDS

FUND NAME TICKER 5-YR
ANNUAL
RETURN		 TOTAL
RISK
INDEX		 CATEGORY
RISK
INDEX		 EXPENSE
RATIO		 CATEGORY
DFA LTIP Institutional DRXIX (9.4%) F 1.21 3.27 F 0.12% A Inflation-Protected Bond
Wasatch-Hoisington US Treasury WHOSX (8.7%) F 1.28 1.21 F 0.73% B Long Government
Fidelity SAI Long-Term Treasury Bd Idx FBLTX (6.7%) F 1.13 1.07 F 0.03% A Long Government
PIMCO Long-Term US Government C PFGCX (6.3%) F 1.05 0.99 C 4.76% F Long Government
T. Rowe Price US Trs LongTerm Idx PRULX (6.2%) F 1.05 1.00 C 0.29% A Long Government

See Bottom 100 Funds

(Data as of 6/30/2026)


Consistent Performers

Consistent Performers

A list of mutual funds that have exceeded or fallen short of their category over the last 3-, 5-, and 10-year periods, updated monthly.

FUND NAME TICKER ANNUAL RETURN CATEGORY
RISK
INDEX		 CATEGORY
3-YR 5-YR 10-YR
Horizon Active Asset Allocation Investor AAANX 16.3% A 8.7% A 10.6% A 1.25 F Tactical Allocation
Alger Large Cap Growth I-2 AAGOX 34.5% A 13.4% A 20.1% A 1.23 F Large Growth
American Funds American Balanced A ABALX 17.0% A 9.7% A 10.3% A 1.01 C Moderate Allocation
American High-Income Municipal Bond F-1 ABHFX 6.0% A 1.9% A 3.2% A 0.95 B High Yield Muni
Alger Balanced I-2 ABLOX 17.2% A 11.2% A 11.1% A 0.99 C Moderate Allocation

See All 1,566 Funds

(Data as of 6/30/2026)


FUND NAME TICKER ANNUAL RETURN CATEGORY
RISK
INDEX		 CATEGORY
3-YR 5-YR 10-YR
DWS RREEF Real Assets A AAAAX 10.0% F 4.8% F 6.6% F 1.04 D Global Moderately Aggressive Allocation
DWS RREEF Real Assets C AAAPX 9.2% F 4.0% F 5.8% F 1.04 D Global Moderately Aggressive Allocation
DWS RREEF Real Assets R AAAQX 9.7% F 4.6% F 6.3% F 1.05 D Global Moderately Aggressive Allocation
DWS RREEF Real Assets S AAASX 10.2% F 5.0% F 6.7% F 1.04 D Global Moderately Aggressive Allocation
DWS RREEF Real Assets R6 AAAVX 10.3% F 5.2% F 6.9% F 1.05 D Global Moderately Aggressive Allocation

See All 1,587 Funds

(Data as of 6/30/2026)


Login to see if any of your mutual funds are consistent performers.
Top Bottom Funds

Performance Benchmarks

Returns for the major indexes and the fund categories, updated monthly, to use for comparison.

FUND CATEGORY 1-MONTH
RETURN		 YTD
RETURN		 3-YR
ANNUAL RETURN		 5-YR
ANNUAL RETURN		 10-YR
ANNUAL RETURN		 TOTAL RISK
INDEX		 YIELD EXPENSE RATIO
Small Blend 5.9% 21.7% 16.4% 7.9% 11.2% 1.52 0.4% 1.05%
Mid-Cap Blend 4.1% 15.3% 14.7% 8.2% 11.0% 1.29 0.5% 0.98%
Foreign Large Blend 0.5% 10.9% 16.7% 8.2% 9.5% 1.06 2.2% 0.94%
Intermediate Government 0.2% 0.1% 3.4% -0.3% 0.8% 0.43 3.5% 0.61%
Large Blend (0.2%) 9.0% 18.5% 11.6% 14.1% 1.09 0.6% 0.81%

See All Fund Category Comparisons



(Data as of 6/30/2026)


GLOBAL ASSET CLASS 1-MONTH
RETURN		 YTD
RETURN		 3-YR
ANNUAL RETURN		 5-YR
ANNUAL RETURN		 10-YR
ANNUAL RETURN		 TOTAL RISK
INDEX		 YIELD EXPENSE RATIO
Equity 1.5% 13.2% 16.9% 8.3% 11.5% 1.28 1.1% 1.06%
Fixed Income 0.4% 1.5% 5.3% 1.6% 2.5% 0.38 4.4% 0.81%
Allocation 0.2% 8.2% 13.4% 6.7% 8.4% 0.79 2.3% 0.87%

See All Global Asset Class Comparisons



(Data as of 6/30/2026)


FUND GROUP 1-MONTH
RETURN		 YTD
RETURN		 3-YR
ANNUAL RETURN		 5-YR
ANNUAL RETURN		 10-YR
ANNUAL RETURN		 TOTAL RISK
INDEX		 YIELD EXPENSE RATIO
U.S. Equity 2.4% 13.3% 16.9% 8.9% 12.7% 1.31 0.5% 0.99%
Taxable Bond 0.2% 1.3% 5.8% 1.8% 2.8% 0.36 4.8% 0.82%
Allocation 0.2% 8.4% 13.5% 6.7% 8.5% 0.79 2.3% 0.87%
International Equity 0.2% 13.4% 17.1% 7.0% 9.9% 1.20 1.6% 1.08%
Commodities -8.3% 13.1% 12.8% 9.7% 6.6% 1.07 10.4% 1.12%

See All Fund Group Comparisons



(Data as of 6/30/2026)


INDEX 1-MONTH
RETURN		 YTD
RETURN		 3-YR
ANNUAL
RETURN		 5-YR
ANNUAL
RETURN		 10-YR
ANNUAL
RETURN		 TOTAL RISK
INDEX
S&P SmallCap 600 TR USD 7.3% 23.9% 16.0% 7.4% 11.5% 1.29
S&P MidCap 400 TR 3.6% 17.3% 15.4% 9.1% 11.6% 1.05
Bloomberg US Treasury Long TR USD 1.0% 0.4% -0.5% -5.6% -1.3% 0.85
MSCI EAFE GR USD 0.1% 9.8% 17.0% 9.6% 10.2% 0.89
S&P 500 (TR) (1970) -1.0% 10.2% 20.6% 13.4% 15.5% 0.87

See All Indexes



(Data as of 6/30/2026)


Top Bottom Funds

Equity Risk-Adjusted Returns

Equity fund returns adjusted for risk relative to the market, updated monthly.

FUND NAME TICKER CATEGORY 3-YR AVG
ANN'L
RISK-ADJ RET		 MARKET
RISK
INDEX
(1.00=S&P 500)		 3-YR ANN'L
STD DEV		 3-YR AVG
ANN'L RET
Permanent Portfolio Aggressi.... PAGRX Large Blend 26.3% 1.28% 16.7% 32.28%
Permanent Portfolio Aggressi.... PAGDX Large Blend 26.1% 1.28% 16.6% 32.04%
Permanent Portfolio Aggressi.... PAGHX Large Blend 25.4% 1.27% 16.6% 31.20%
Pin Oak Equity POGSX Large Blend 25.0% 0.85% 11.0% 21.84%
Fidelity Series Large Cap St.... FGLGX Large Blend 24.3% 0.97% 12.6% 23.64%
Indexes
S&P 500 (TR) (1970) 19.7% 1.00% 13.1% 19.68%
S&P MidCap 400 TR 13.6% 1.21% 15.9% 15.60%
S&P SmallCap 600 TR USD 12.7% 1.49% 19.4% 16.80%

See All (5409) Funds



(Data as of 6/30/2026)


FUND NAME TICKER CATEGORY 3-YR AVG
ANN'L
RISK-ADJ RET		 MARKET
RISK
INDEX
(1.00=S&P 500)		 3-YR ANN'L
STD DEV		 3-YR AVG
ANN'L RET
Indexes
S&P 500 (TR) (1970) 19.7% 1.00% 13.1% 19.68%
S&P MidCap 400 TR 13.6% 1.21% 15.9% 15.60%
S&P SmallCap 600 TR USD 12.7% 1.49% 19.4% 16.80%

See All (0) Funds



(Data as of 6/30/2026)


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Semiconductors Process Big Second-Quarter Gains

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The top 25 and bottom 25 exchange-traded funds (ETFs) and mutual funds for the second quarter of 2026.

August 2026

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June 2026

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May 2026

Copyright 2026 American Association of Individual Investors and Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.