Finding Financials-Shy Large-Value Funds
These funds are treading lightly in the dicey sector.
The financials sector, particularly large U.S. banks, has been at the epicenter of the ugly economic environment and the deepening recession. The diversified funds most likely to invest in them, large-value offerings, have been hit hard as a result. Large-value funds have, on average, lost 51% of their value from the market's peak on Oct. 9, 2007, through March 13, 2009. But although the share prices of those banks that have thus far survived are down dramatically from their peaks, the prospects of further credit woes and possible nationalization make them high-risk propositions that could turn out to be value traps.
Some intrepid large-value funds making big bets on the sector now may end up profiting greatly if the share prices of banks rebound, but more risk-averse investors should probably seek out competing funds that are focusing their efforts elsewhere. To assist them, we're using Morningstar's Premium Fund Screener to identify large-value offerings that are going easy on the sector, have held up relatively well over the turbulent last 12 months, and have experienced skippers who have posted a solid longer-term record. So, we screened for funds that stash no more than 12% of their assets in financials (a third less than the large-value average) and have lost less than three fourths of their rivals over the past year. We also wanted funds that have outpaced 75% of the category over the past five years and have had the same manager at the helm for that entire span. Finally, we focused on funds that have a cost advantage over most competitors, so only funds with expense ratios of 1% or less made the cut.
Click here to run the screen yourself. The Premium Screener generated the following results as of March 16, 2009:
Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.