Top 15 Value Creators in the Fund Industry
Editor’s Note: A version of this article was published on Jan. 23, 2024.
If you want to know how a fund has performed, total returns are the first place to look. But performance is less meaningful if few shareholders are around to benefit from it.
To get a better sense of which funds have created the most value in dollar terms, value creation is a better measure. To home in on this, I ranked Morningstar’s database of US-based mutual funds and exchange-traded funds, focusing on those that had the biggest increase in asset size over the 10 years ended in 2024 after subtracting total inflows and outflows over the same period. The resulting number reflects how much growth a fund has created from market appreciation in dollars.
Two important notes: This study doesn’t include ETFs in the taxable-bond and municipal-bond category groups or ETFs in the energy limited-partnership Morningstar Category because their income distributions complicate matters for our inflow and outflow calculations. It also focuses on results for long-only shareholders invested directly in each fund; it doesn’t capture changes in wealth for investors who used these funds in other ways, such as with options trades or short sales.
The Results
To some extent, this is a chicken-and-egg exercise. By definition, the biggest funds will create or destroy more value in dollar terms. And money tends to flow to the funds that have been successful in the past, so the big generally get bigger.
As the exhibit below illustrates, the 15 funds that created the most value are all large, well-established names. Most of them are also among the biggest funds in the industry ranked by asset size.
Not surprisingly, nine of the 15 funds are low-cost passively managed funds that track broad market indexes. As passive management has consistently gained market share, buying the market and keeping costs low has been a winning strategy. Fidelity Contrafund FCNTX, managed by Will Danoff for the past 34 years, has been an exception. During its glory days in the 1990s, the fund racked up billions of asset growth. The fund has continued to post strong returns compared with its large-growth peers, generating significant value for shareholders in dollar terms.
On the other side of the country, Los Angeles-based American Funds has also created billions in shareholder value with its measured, multimanager approach. The funds are actively managed but tend toward the conservative side with broadly diversified portfolios that avoid big bets and rapid-fire trading. As the table below shows, American Funds has created an estimated $1.5 trillion in shareholder value over the trailing 10-year period. (Note: This figure doesn’t include the impact of sales commissions, which would reduce the benefit to shareholders.)
Vanguard tops the list, with a stunning $4.7 trillion in estimated value creation, compared with about $2.1 trillion for Fidelity. Index powerhouses iShares and State Street also rank in the top 10 fund families based on value created, along with other large firms, such as T. Rowe Price. (As noted above, my calculations don’t include the effect of sales loads, which would reduce shareholders’ actual results.) For the most part, size and value creation go hand in hand; the top 10 fund companies based on fund size have also created the most value in dollar terms. However, some firms have created more value relative to their size than others. T. Rowe Price, for example, has punched well above its weight based on this metric.
Looking at the results by Morningstar Category, basic was definitely better. The large-blend category, which ranked as the largest fund category based on assets as of Dec. 31, 2024, sits at the top of the list with an estimated $5.4 trillion in shareholder value created. This category is also home to nine of the top 15 funds shown in the first exhibit. Investors have done well in large-blend funds because they typically get broadly diversified exposure to the mega-cap stocks that dominate the market, as well as some exposure to mid-cap names.
Most of the top value creators by category also happen to be among the largest categories based on asset size (again, the chicken-and-egg issue). But there are some nuances. The diversified emerging-markets category, for example, ranks as the ninth-largest fund category by asset size but didn’t break into the winners’ list as developing markets have generated lackluster returns over the past 10 years.
Three of the top 10 categories land on the growth side of the Morningstar Style Box. The best growth funds benefited from dominant market trends during most of the 10-year period, when growth-oriented stocks outperformed their value counterparts by nearly 5 percentage points per year, on average.
Technology-stock funds fared better than might be expected, creating an estimated $337 billion during the 10-year period. Despite their sharp drop in 2022, technology was by far the best-performing sector over the 10 years spanning 2015 through 2024, with annualized returns outperforming the broader market by a huge margin (close to 9 percentage points per year). This performance advantage means shareholders were well rewarded even though sector funds tend to be difficult to use effectively in a portfolio.
Conclusion
The biggest players in the fund industry are often vilified as having too much power and failing to act in the best interests of their shareholders. But as the results above show, the largest funds and fund families have created significant value where it counts: by increasing dollar value for shareholders.
In a future article, I’ll take a look at some of the biggest value destroyers over the same period.
