In this article, we discuss the 10 best index funds to invest in 2022. If you want to skip our detailed analysis of these ETFs, go directly to the 5 Best Index Funds to Invest In 2022.
As the stock market becomes more volatile due to rising inflation and the looming interest rate hike, it has become even harder for investors to identify individual stocks that will deliver solid returns. In this uncertain environment, many investors are flocking to the safety that index funds offer to portfolios. Index funds are mutual or exchange-traded funds that aim to replicate the performance of an underlying index. Index funds are generally considered sound investments for amateurs due to their relatively lower risk profile and low expense fees.
Historically, some of the top index funds have delivered handsome returns to investors. For example, the benchmark S&P 500 has delivered annual returns of around 10% to investors since inception. Usually, investments in index funds can only be made through brokerage accounts, traditional or ROTH IRAs, or 401(k) accounts. In the past few years, index funds that have placed responsible environmental, social, and governance (ESG) policies at the center of their investment models are thriving.
According to a report from financial services firm Morningstar Inc. (NASDAQ: MORN), a group of 13 ESG index funds in the US that replicate the performance of large-cap and diverse indexes gained an average 29.2% in 2021. This was higher than the gain of the benchmark S&P 500 during the period which stood at around 28.7%. Some of the top holdings of the best index funds to invest in for 2022 include Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Alphabet Inc. (NASDAQ:GOOG), and NVIDIA Corporation (NASDAQ:NVDA), among others discussed in detail below.
Our Methodology
Here is our list of the best index funds to invest in 2022. The aim of the article is to provide readers with a basic rundown of some of the top index funds in the US. All the index funds listed below trade on exchanges in the United States.
Best Index Funds to Invest In 2022
10. Fidelity ZERO Large Cap Index Fund (NASDAQ:FNILX)
Fidelity ZERO Large Cap Index Fund (NASDAQ:FNILX) is an index fund that invests at least 80% of assets in stocks on the Fidelity US Large Cap Index which comprises a group of 500 companies that have large market capitalizations and are trading in the United States.
One of the top holdings of the Fidelity ZERO Large Cap Index Fund (NASDAQ:FNILX) is Microsoft Corporation (NASDAQ:MSFT), the Washington-based tech giant. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT) with 25 million shares worth more than $7 billion.
Just like Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Alphabet Inc. (NASDAQ:GOOG), and NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT) is one of the stocks that growth investors are keeping their eye on.
In its Q1 2021 investor letter, Polen Capital, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“We have written extensively about Microsoft Corporation (NASDAQ:MSFT) in recent commentaries. It was our leading contributor last year and one of our largest weightings within the Portfolio. Microsoft Corporation (NASDAQ:MSFT) continues to experience business momentum through several dominant, essential, and competitively advantaged businesses, like Office 365 and Azure. The markets it competes for are enormous, which gives the company the ability to compound at scale. In the past quarter alone, the company generated over $40 billion in revenue, representing a 17% growth rate. The inherent operating leverage in Microsoft’s business model continues and led to 34% earnings growth this past quarter. Despite the broad rotation we saw in the first quarter and Microsoft’s robust performance in 2020, we think its business fundamentals continue to exhibit strength, and Microsoft Corporation (NASDAQ:MSFT) stock continues to reflect the fundamentals.”
9. NASDXShelton Capital Management Nasdaq-100 Index Fund Direct Shares (NASDAQ:NASDX)
NASDXShelton Capital Management Nasdaq-100 Index Fund Direct Shares (NASDAQ:NASDX) is an index fund that invests at least 80% of total assets in stocks on the Nasdaq-100 Index. The index comprises 100 large domestic and international firms that have business in the non-financial domains.
NASDXShelton Capital Management Nasdaq-100 Index Fund Direct Shares (NASDAQ:NASDX) holds a large stake in Amazon.com, Inc. (NASDAQ:AMZN), a diversified tech firm with core interests in ecommerce. Among the hedge funds being tracked by Insider Monkey, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ:AMZN) with 3.9 million shares worth more than $12.8 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“Amazon.com, Inc. (NASDAQ:AMZN):We sold our last remaining stake in Amazon.com, Inc. (NASDAQ:AMZN) this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon.com, Inc. (NASDAQ:AMZN) has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment:1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon.com, Inc. (NASDAQ:AMZN), we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon.com, Inc. (NASDAQ:AMZN) is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is …”read the entire letter here]
8. Schwab S&P 500 Index Fund (NASDAQ:SWPPX)
Schwab S&P 500 Index Fund (NASDAQ:SWPPX) is an index fund that invests at least 80% of net assets in stocks on the S&P 500 Index. The index comprises 500 of the largest firms in terms of market capitalization that trade on exchanges in the United States.
A top holding of the Schwab S&P 500 Index Fund (NASDAQ:SWPPX) is JPMorgan Chase & Co. (NYSE:JPM), a financial services company. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in JPMorgan Chase & Co. (NYSE:JPM) with 7 million shares worth more than $1.1 billion.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and JPMorgan Chase & Co. (NYSE:JPM) was one of them. Here is what the fund said:
“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: “There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.” Little did we know “sooner” really meant “a few weeks from now.” Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan Chase & Co. (NYSE:JPM) and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan Chase & Co. (NYSE:JPM) and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”
7. Fidelity US Sustainability Index Fund (NASDAQ:FITLX)
Fidelity US Sustainability Index Fund (NASDAQ:FITLX) is an index fund that invests at least 80% of assets in securities on the MSCI USA ESG Leaders Index. The index comprises mid and large cap firms that trade on exchanges in the US and have high scores, relative to sector peers, in the environment, social, and governance business protocols.
Fidelity US Sustainability Index Fund (NASDAQ:FITLX) holds a large stake in Tesla, Inc. (NASDAQ:TSLA), the California-based EV maker. At the end of the third quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $10 billion in Tesla, Inc. (NASDAQ:TSLA), the same as in the previous quarter worth $9 billion.
Here is what Baron Partners Fund has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2021 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. Tesla, Inc. (NASDAQ:TSLA) stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla’s full self-driving technology.”
6. Schwab Total Stock Market Index Fund (NASDAQ:SWTSX)
Schwab Total Stock Market Index Fund (NASDAQ:SWTSX) is an index fund that invests at least 80% of net assets in stocks on the Dow Jones U.S. Total Stock Market IndexSM. The index aims to measure the performance of the US markets as a whole. The fund also invests in derivatives and principally futures contracts.
One of the premier holdings of the Schwab Total Stock Market Index Fund (NASDAQ:SWTSX) is Apple Inc. (NASDAQ:AAPL), the California-based consumer electronics firm. At the end of the third quarter of 2021, 120 hedge funds in the database of Insider Monkey held stakes worth $146 billion in Apple Inc. (NASDAQ:AAPL), compared to 138 in the preceding quarter worth $146 billion.
Along with Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Alphabet Inc. (NASDAQ:GOOG), and NVIDIA Corporation (NASDAQ:NVDA), Apple Inc. (NASDAQ:AAPL) is one of the stocks that elite investors are flocking to.
In its Q1 2021 investor letter, Distillate Capital, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple is an even more notable situation and one that highlights our free cash valuation methodology and bears further discussion given its Q3 ‘20 sale from our strategy. For an extended period, Apple was extraordinarily inexpensive on a free cash flow basis and was the largest position in our strategy, exceeding 5% of the portfolio.”
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Disclosure. None. 10 Best Index Funds to Invest In 2022 is originally published on Insider Monkey.
