3 Great Value Funds
Our analysts discuss solid ideas for this type of exposure.
Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. There may be good reason for some investors to explore value-oriented mutual funds and ETFs today. For instance, if you've been using discrete funds for your growth and value exposures, you may find that your once-balanced style portfolio maybe light on value given growth's extended run. Or you may be among those who think value stocks are finally going to have their day, and you'd like to tilt your portfolio toward that style. Here's a look at three highly rated value funds.
Alec Lucas: American Funds American Mutual is a very reliable, large-cap-oriented fund that focuses on dividend-paying companies with sound balance sheets. Each of the fund's seven managers, who each manage an independent sleeve of the fund, has to meet an above-market pre-expense yield target in managing their sleeve of the portfolio. Otherwise, the managers are free to invest according to their own investment style. Splitting up the portfolio in this way and dividing among those seven managers and their two analyst teams minimizes key-person risk in the fund. The fund has been very reliable since its 1950 inception. This is the kind of fund you can own when you're worried about market valuations and markets plunging, because this has proven the ability to preserve capital better than the S&P 500.
Robby Greengold: Fidelity Low-Priced Stock is an excellent value fund that investors should consider. Since the fund's 1989 inception, manager Joel Tillinghast has steadily built one of the finest track records of any fund in either the small- or mid-cap Morningstar Categories. He's achieved that by reliably protecting shareholder capital during market drawdowns while participating healthily on the upside. That pattern derives from Tillinghast's extraordinarily methodical approach, his ability to spot high-quality companies, and his refusal to chase short-term fads. This portfolio is broadly diversified across hundreds of stocks, and with each of those positions Tillinghast focuses on the long run. He looks for resilient companies with staying power. That means that he's generally trying to avoid companies that lack an enduring competitive advantage, and he steers clear of companies loaded up with too much debt. Almost without fail, this fund has offered investors refuge during rocky market environments. And with Tillinghast's steady hand at the wheel, we continue to have high conviction in this Silver-rated strategy.
Alex Bryan: Vanguard Mid Cap Value ETF is one of the cheapest and most broadly diversified funds in the mid-cap value Morningstar Category, which makes it one of the best. This strategy targets stocks representing the cheaper and slower-growing half of the U.S. mid-cap market and weights them by market capitalization. Now that reflects the market's collective wisdom about the relative value of each stock. These stocks aren't necessarily bargains since they're growing more slowly than their pricier counterparts; however, they could become undervalued if investors extrapolate their lackluster past growth too far into the future. While this portfolio often looks a lot like the mid-cap value Morningstar Category average, its durable cost advantage and lower than average cash balance gives it a durable edge. It beat the category average by just over 2 percentage points annually over the past 10 years, and it should continue to reward investors over the long term.
Susan Dziubinski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.