With so many investment funds now available, we need to evaluate them to pick what is right for our needs. We’ll start by looking at the key factors for fund analysis and then cover useful resources to locate this information.
Key Factors for Fund Comparisons
When evaluating all types of funds (mutual, closed-end (CEFs), or exchange traded (ETFs)) compare the key factors of:
- Costs
- Assets
- Managers
- Performance
- Taxes
Many people start by evaluating fund performance first, but as we’ll cover in more detail below, performance can be a bit misleading. Instead, start with the costs, assets, and management of the fund to clearly understand the performance numbers and if they will be more or less likely to repeat.
This column owes a debt of inspiration to a Motley Fool Hidden Gems Investing podcast from 2026 that covers many of these issues. I will summarize some of their suggestions here, but the information below contains my own priorities and views.
Fund Costs
The Motley Fool team points out that not only do fees play a huge role in fund performance, they are the only part of the investment that is guaranteed! All other up- and downsides depend on drunk Mr. Market or, at best, upon the fund manager’s competence of the moment, so any comparison should begin here.
The two key numbers are expense ratios and historical fees.
- Expense ratios show the anticipated and fixed management costs as a percentage of the asset basis (per $10,000) taken by the fund managers before paying out returns; for example, $5 per year on every $10,000 invested is 0.05%.
- Historical fees document the additional trading fees, taxes, and other costs passed on to fund owners in the past before paying out returns, also as a percentage.
Competition and consumer awareness continues to push average fund fees lower with the Investment Company Institute (ICI) estimating average 2025 fees to be:
- 0.64% for Equity mutual funds
- 0.44% Bond mutual funds
- 0.05% Index mutual funds
- 0.44% Actively managed equity ETFs
- 0.33% Actively managed bond ETFs
- 0.14% Index equity ETFs
- 0.09% Index bond ETFs
Watch out and try to avoid funds, especially in 401k and 403b accounts, with fund fees of 1% or more.
These numbers sound small and we won’t ever see this money as something taken out of our account because the fund deducts this money before distributing returns. However, especially if you reinvest your dividends, hundreds of dollars in fees compounded over decades is thousands of dollars of additional money missing from your pocket.
Just keep in mind that fees must be compared between equivalent funds. Actively traded funds, options funds, small market funds, and foreign stock funds suffer higher fees because research and acquisition expenses are higher than S&P 500 index funds.
If we want a growth, value, or high yield fund, some expert will be paid to evaluate what fits that criteria, how often the criteria should be applied, and how to rebalance the portfolio to maximize return within their criteria constraints. This expert needs to be paid and the rebalancing will introduce additional fees and costs..
Lower fees alone don’t justify a purchasing decision. Although fees remain a primary factor, they merely indicate a level of efficiency for the fund that must combine with other factors.
Fund Assets
Fund assets, or the types of investments held by the fund, define expectations for growth, income, and risk. For example, an S&P 500 index fund provides excellent growth prospects, but will not provide much income, and may go up and down dramatically in any given year.
While beginning investors will be content to focus on a single fund, more mature investors will seek to diversify further or to achieve other objectives. For example, when you want to build out an emergency fund that earns more than a checking account, the S&P 500 index fund will be too volatile, so you might want to consider a fixed income, or bond fund instead.
To pick a fund, we often use a search engine or browse through the names of the funds. This is a good start, but then you’ll want to take a close look at the holdings.
What’s In a Name
We start by scanning the name of the fund and that should provide a clue regarding the fund’s purpose or asset holdings. For example:
- State Street SPDR S&P 500 ETF Trust (SPY)
- Vanguard International High Dividend Yield Index Fund ETF Shares (VYMI)
- GlobalX Nasdaq 100 Covered Call ETF (QYLD)
These seem to be very straight-forward and a review of the contents of these exchange traded funds will match the names. However, keep in mind that names can provide guidelines, but they can also be misleading.
Some fund managers, especially for actively traded funds, have flexibility to make investments outside of the stated objectives of the fund. That can be built-in drift. Fund managers want this because it is potentially good for performance, but drift is probably not aligned with your objectives.
A fund that was supposed to be focused on value stocks (low price to earning ratio) may hold on to companies that grow because they make the performance look good. Yet most people that buy value stocks want to diversify away from the hot companies that may be primed for a crash when the market turns.
For example, Barrons found that several high-performing “value funds” contained the company Micron even after the stock jumped almost 10x in price! Not only did Micron drive the performance of one example fund, customers chasing success added $680 billion to the fund. The fund became more successful by deviating from their ‘value’ principles.
Additionally, names are marketing and the holdings are reality. For example, The Street reviewed the Franklin U.S. Core Dividend Tilt Index ETF (UDIV) and disliked the disconnect between its title, published objective, and holdings so much, that it titled the review “This might be the worst dividend ETF in the world!”
The fund publicized itself as a dividend fund in the title and includes “DIV” in the stock symbol. The fund objective further emphasizes the conservative stereotype for dividends (higher income with lower risk) by advertising goals to “maximize yield per unit of active risk” and “to provide investment results that closely correspond, before fees and expenses, to the performance of the Morningstar® US Dividend Enhanced Select IndexSM (Underlying Index).”
Despite a lovely performance record and a low 0.06% net expense ratio, the UDIV assets don’t really contain dividend stocks! The Street notes that overall, the fund mirrors the S&P 500, but places even more emphasis on technology stocks that pay low dividends (under 1% for any of the top 10 holdings).
If you truly wanted a dividend portfolio diversified from your S&P 500 index stock, UDIV would be a terrible choice. It also leads us to the next key principle to consider when looking at the fund assets: asset overlap.
Minimize Asset Overlap
Some overlap of stocks will be inevitable, but if you are trying to diversify you want to minimize overlap and make sure the funds hold different stocks from each other. At least compare the top 10 holdings or the holdings it takes to reach 30% of the portfolio assets to spot major overlaps between funds.
Keep in mind what we covered last week as well. Exchange traded funds will provide the most transparency, mutual funds only reveal a portion of their holdings, and closed end funds can be downright murky.
Fund Managers
Although portfolio risk motivates many of us to buy funds, expertise provides the other key factor. We seek to hire a finance professional to manage our money and use their expertise to safely generate income and asset growth.
With that in mind, check the fund management. Is it one or two people or a full management team? How long have they been on the job?
These questions will be especially important for actively managed funds where the managers impact fund performance the most. The tenure of the management team also provides context for the performance numbers.
For example, is the fund with a great 15-year performance that just switched fund managers still the same fund as advertised? New managers often change fund strategies and past performance records become less meaningful.
Ideally, you also want to see results from a manager team in place for both good times and bad times so you can see how they manage adversity and success (see also fund performance, below). For index funds, the index is really the manager, so management tenure will be less important to track.
Fund Performance
Once we understand the costs, the assets, and the management team, we now have the context to understand the performance. As with expense ratios, compare similar funds only.
For example, everyone made a killing with NVDA over the past five years. So any tech or S&P 500 fund will be doing much better than bond funds or small cap funds over the same time period.
Don’t just chase recent success. A fund that is OK for 15 years and great for the last 5 years, could just be getting lucky. A brand new fund that is doing fantastic might have a fragile strategy that might crumble in a downturn.
As with fund managers, you want to see how they do in good and bad times – for at least 7 to 10 years to capture a couple of market downturns. 2022 is one of the worst years ever for bonds and a bad year for stocks. How did your fund do in that year?
Keep in mind those ‘bad years’ apply primarily to the US markets. If you are buying an Asia stock fund, or a European Bond fund, or a cryptocurrency fund, look at as broad a time period as possible to see when their down turns might have occurred.
Fund Taxes
Fund taxes don’t apply to most holdings in a 401K or an IRA account, so beginning investors often safely ignore them. However, at some point, sophisticated investors will purchase funds outside of their retirement accounts and will deal with tax consequences.
Funds will sell a holding for various reasons and are required to distribute the capital gains (profits from the sales of stocks that went up in value) to the fund owners. You will owe capital gains taxes on those distributions even if you never sell a share of your fund!
Additionally, actively traded funds will generate larger tax bills than index funds because of portfolio turnover, or the number of stocks replaced within each year. A turnover of 10-20% is fairly low and higher percentages will mean potentially higher taxes (and trading expenses) beyond the published expense ratio of the funds.
You can also look up the specific tax ratio for the fund in the past and then project how that impacts its future performance in your account. For example, a 1.25% tax ratio for a fund that generates a 7.5% return would only mean a 6.25% return for customers that owned that fund in a taxable account.
Don’t Be Afraid of Homework
Doing your own fund comparisons won’t take much time or effort. You just need to know where to start. For a full conversation between certified financial advisors, consider listening to the Motley Fool Hidden Gems Investing podcast from 2026. This will broaden your understanding even more for fund evaluation.
To find fund data (expense ratios, etc.) you can use the Morningstar Fund Screener and the Morningstar Fund Research Center. Morningstar’s one-stop location provides an excellent overview of thousands of different funds, historical tax expenses, details on fund managers, and even offers a fund comparison option.
Finally, each fund will also provide a public prospectus that you can find by performing a search for the fund name and “prospectus.” Each prospectus provides the fund’s stated objectives, assets, costs, and performance. Start with exploring what you already own and explore other funds that sound interesting to you when you feel like diversifying more.
Yes, I know, homework is a pain. Yet the fact is that the more homework you do for yourself, the more you grow and the more powerful your skill set becomes. Invest in yourself and your future!