Rather than trying to identify outperforming mutual fund managers with a “hot hand,” investors may be better off just buying exchange traded funds that follow an index.

ETFs are becoming a worthwhile alternative to some of the most prominent mutual funds currently available, according to some observers.

Vanguard Health Care Fund is well managed, has outperformed relevant indexes and has a reasonably priced expense ratio, says Larry Meyers at Seeking Alpha. The fund has an expense ratio of 0.35%, and the fund plunged as low as 47% during the financial crisis but has since gained 70%. [Investors Miffed with Underperforming Funds Migrate to ETFs.]

In comparison, the ETF PowerShares Dynamic Heathcare (NYSEArca: PTH) fell 49% during the downturn but has since increased 108%. While the fund has an expense ratio of 0.65%, the difference in performance between the ETF and the mutual fund more than makes up for the expenses, Meyers writes.

T. Rowe Price Capital Appreciation, a 5-star Morningstar-rated fund with a 10-year annualized return of 8.31%, raked up total returns of 122% over 10 years and is the leader in its category. The mutual fund bottomed out with a 49% loss and has climbed 84% since the downturn, according to Meyers. The fund has a 0.70% expense ratio.

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