13 Great Funds for 2026 and Beyond

There are plenty of reasons to worry about the markets in 2026. Inflation and unemployment are on the rise. Stocks had strong returns in 2025, leaving valuations high. And we might be in a bubble for artificial intelligence stocks. Yet, bear markets are uncommon and very hard to predict. And as 2025 showed, it’s sometimes better to relax and tune out all the economic drama. Certainly, it’s better to stay the course and keep investing.

Here, I chose some funds that look like good plays for 2026 and beyond. Keep in mind, though, that these are long-term investments that you ought to hold for a decade or longer.

I’ll start with contrarian ideas, then conservative defensive options (munis), and move on to our more compelling Morningstar Medalist Rating upgrades. I should add the caveat that these are ideas for changes at the margins of your portfolio. You should always avoid making big changes to your long-term plan, barring some big life events.

Finding Cheap Stocks in the Style Box

Our equity analysts estimate a company’s fair value, and we roll up each stock’s premium or discount to fair value by the Morningstar Style Box. The biggest surprise is how many of the boxes traded at a discount as of year-end, including large growth, which has dominated in recent years. I think the bigger discounts are a good guide to where the better bargains are, but I wouldn’t suggest that the discounts will predict each style box’s 2026 performance, with the most highly discounted areas producing the highest returns, and the squares trading at a premium lagging. Things are never that tidy in investing.

The lower-left corner is where the bargains are. At year’s end, small value was at a 23% discount, mostly because the area lacked the AI-related stocks that generated the most excitement and biggest gains in 2025. A more subtle issue may be that small-value stocks tend to be more economically sensitive, and thus, investors who see the odds of recession growing are wary of them.

Over the trailing five years, large-growth funds produced an annualized 11.3% gain compared with just 9.7% for small value.

So, here is an actively managed fund and a passive option in each of the small-value, small-blend, and mid-value Morningstar Categories.

FPA Queens Road Small Cap Value QRSVX is in a nice spot. With $1.1 billion in assets, the Silver-rated fund isn’t too bloated, but its expense ratio of 0.94% makes it competitive with larger small-value funds. Steve Scruggs is a patient value investor inspired by Warren Buffett. We like that he has added staff since partnering with FPA funds.

If you are investing in a taxable account, an index fund may be a better bet. Vanguard Small-Cap Value Index VSIAX charges just 0.07%. It’s a reliable portfolio. I should note that it tracks a CRSP index, and Morningstar recently acquired CRSP. Our fund research maintains its independence.

In small blend, I like Silver-rated Fidelity Small Cap Discovery FSCRX. Forrest St. Clair took over a couple of years ago, and he seeks durable companies with competitive advantages but also modestly valued shares. The fund can tap Fidelity’s research and is small enough to make something of it.

On the (mostly) passive side, I like Gold-rated DFA US Small Cap DFSTX. DFA’s forte is using a blend of passive and active techniques to track small caps.

In mid-value, I like Silver-rated MFS Mid Cap Value MVCAX. Brooks Taylor and Kevin Schmitz are experienced investors who took the helm in 2008. They invest two-thirds of the portfolio in companies with strong fundamentals and one-third in opportunistic plays, which largely equate to deep-value turnaround stories. I like that mix because it gives you exposure to both groups of mid-value stocks.

On the passive side, there’s Gold-rated Vanguard Mid-Cap Value Index VMVAX. It’s cheap, and it also follows a CRSP index.

Quality

If you own a fund that focuses on quality, it was probably the worst relative performer in your portfolio in 2025. Quality companies are those with big-name brands, strong balance sheets, and dominant industry positions. They tend to trade at a premium because, to a degree, everyone wants those things. However, they aren’t the fastest growers. When investors are excited about a new field like artificial intelligence or electric vehicles, they sell their quality stocks for companies that seem to have caught lightning in a bottle. We just had one of those years, and funds from the likes of Wasatch and Jensen, as well as any dividend-growth strategy, endured a rough year.

Dividend-growth funds have very high-quality portfolios, and one of my favorites is Gold-rated Vanguard Dividend Growth VDIGX. Wellington’s Peter Fisher seeks out companies with dominant industry positions, good balance sheets, and, of course, rising dividends. The fund charges just 22 basis points.

Vanguard Dividend Appreciation Index VDADX is a passive dividend-growth fund. It’s cheap, and we rate it Gold.

I like Parnassus Core Equity PRBLX. The Bronze-rated fund really emphasizes quality. A whopping 90% of the portfolio is in wide-moat stocks. The top 13 names in the portfolio all have wide moats. The top three are Microsoft MSFT, Alphabet GOOGL, and Amazon.com AMZN. Manager Todd Ahlsten has built an appealing defensive portfolio.

Vanguard Dividend Appreciation Index has 79% of assets in wide-moat stocks, so it’s a good passive option for Parnassus Core Equity, too.

Another take on quality is Silver-rated Artisan International Value ARTKX, where David Samra looks for quality stocks that are good values. The fund lagged in 2025, as Samra runs a concentrated portfolio emphasizing value and quality. Despite the fund’s off year, Samra’s full record is way ahead of the MSCI EAFE Index, and I see the potential for it to return to form.

Artisan International Value is closed to new investors. Artisan Global Value ARTGX, run by International Value’s former comanager Dan O’Keefe, applies a similar strategy to a global universe and is open to new investors.

Munis

Municipal bonds are boring, but they tend to hold up well in recessions. For taxable accounts, they are a good source of income. Vanguard and Fidelity muni funds are our favorites across the board.

Upgrades

We didn’t have a lot of upgrades in 2025, but there were some where we saw improving fundamentals leading us to upgrade a fund’s People or Process Pillar, as well as its overall rating.

Dodge & Cox Emerging Markets Stock DODEX continues to impress with its mix of fundamental and quantitative research. That’s a new thing for Dodge, but it has really made it work. We raised the Process rating to Above Average from Average and kept People at Above Average, leading to a Silver rating. To extend its reach to the massive number of securities in emerging markets, the firm brought in Robert Turley to run quant screens for names that fit its value criteria. The result is quite atypical for Dodge & Cox but rather sensible overall. At 200-plus holdings, the portfolio is much larger than those of the firm’s other offerings; it also ranges further down into mid- and small-cap stocks.

Invesco Asia Pacific Equity ASIAX had dramatic changes that led us to raise its Process rating to High and keep People at Above Average, leading to an upgrade to Silver from Bronze.

On June 23, 2025, Invesco replaced the earnings, quality, and valuation team based in Austin, Texas, that had managed this strategy for more than 20 years with a team from Invesco’s Asian and emerging-market equities group in Henley-on-Thames, England. The management change took place immediately, and the Henley team began gradually transforming the portfolio to make it essentially a replica of a fund they run in the UK, Invesco Asian UK. Because we already had ratings on the UK fund, we were confident in mapping its ratings to this fund. The new strategy leans a bit more toward value and tends to stay mainly in the larger emerging markets than the EQV team did.

MFS Income MFIOX earned a Process upgrade to High. The fund has been a steady performer with a well-designed approach. The strategy draws the best ideas from MFS’ experienced fixed-income team. The managers develop a macroeconomic outlook based on the firm’s frequent investment forums and committees, and this drives the portfolio’s sector allocations. At the same time, traditional fundamental bottom-up analysis aids security selection and feeds into those forums and committees.

Alex Mackey typically oversees the portfolio’s corporate bond sleeve, while Josh Marston takes care of selection within other sectors, which results in a portfolio of around 220 issuers.

Conclusion

It looks like we are in for another volatile year in 2026. Diversification and a steady hand will help you to weather most of the issues that come your way.

This article first appeared in the January 2026 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.