Hands off: The 10 top-performing passive funds of the decade

Now may seem like an odd moment to rank the decade’s best passively managed funds. In the active-versus-passive investing debate, one of the most common arguments against passive funds is that a hands-on approach does better in a volatile market. And this year’s market, by any reasonable measure, has been volatile.

But over the longer term, the passive strategy has served investors well. Morningstar Direct ranked the 10 top-performing passively managed funds of the past decade, and some had 10-year annualized returns of almost 25%. At the top of the list is the SPDR S&P Semiconductor ETF, with 24.53%.

So perhaps now is a good time to step back from the market fluctuations of the moment and take in the bigger picture. Diane Pearson, a certified financial planner with 33 years of experience, looks at passive funds from a long-term perspective.

“During an environment where the market has been more volatile, the more actively managed funds tend to do better during that time frame — but it is usually only that time frame,” Pearson said. “So yeah, we’re in a volatile time. We just need to understand that that’s where we are right now and this too shall pass.”

At Pearson’s previous firm, she recalled, she and her colleagues focused much more on actively managing their clients’ investments, meticulously running stock, mutual fund and exchange-traded fund portfolios. But as time went on, she found that the “set it and forget it” approach appeared to do just as well.

“When I started to step back and look at it more from the passive side, I was finding that the returns over the longer term were just as good, if not better in many situations,” Pearson said.

Now, as the head of her own business, Pearson Financial Planning, she primarily recommends passive funds — particularly exchange-traded funds. And as Morningstar’s list shows, there’s good data to back up that choice. Of the top 20 funds, 19 were ETFs.

These days, Pearson offers her clients some simple advice.

“Take a step back to create the plan,” she said. “The plan is for the long term. And stick with it.”

Below is a look at the 10 top-performing passively managed funds of the past decade. To see the best performing mutual funds of any kind of the past 10 years, click here. And for a look at the largest returns of real estate funds, click here.

Note: All data comes from Morningstar Direct and is current as of July 31, 2022. Funds with less than $100 million were excluded, as were leveraged and institutional funds.

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