No one would mistake
The S&P Value index returned 6.2%, compared with 1.6% for the S&P Growth index. And midsize-company value funds, small-company value funds and large-company value funds occupy the top three slots so far this year among
Because value investors dabble in the unloved corners of the stock market, they need a steady hand and a contrarian mind-set -- as you'll find at the helm of these 6 mutual funds poised to harness the power of value stocks.
American Century Equity Income
Expense ratio: 1.18%
Total return, year to date: 12.7%
One-year total return: 15.4%
Five-year annualized total return: 11.0%
Ten-year annualized total return: 7.5%
For this fund's four managers, it's not all about finding bargains. "We're value investors, but we're quality first and value second," says
He and his comanagers start by seeking firms that generate consistent profits and cash flow, have strong balance sheets, and pay steady dividends. Only after identifying these high-quality firms do they apply value filters, using a range of traditional measures, such as the ratios of price to earnings and price to book value (assets minus liabilities). Only stocks that trade below what the
managers have determined to be the companies' fair value get further consideration. "When you combine a value focus with companies that have sustainable dividends, and you buy when stocks are cheap, you end up with a high-quality portfolio," says another comanager,
The fund, which has a sizable stake in preferred and convertible securities and boasts a current yield of 1.9%, delivers a relatively smooth ride. Over the past 10 years, Equity Income, a member of the Kiplinger 25, earned an annualized 7.5%, nipping the return of the S&P 500 and with 30% less volatility.
Boston Partners All-Cap Value
Expense ratio: 0.95%
Total return, year to date: 1.9%
One-year total return: -0.3%
Five-year annualized total return: 11.5%
Ten-year annualized total return: 8.4%
In reality, says Ramallo, it's hard to find a firm that passes all his tests, so he'll settle for just two out of three. He bought shares of Qorvo, a maker of cell-phone radio-frequency filters, in early 2016, although it had recently hit a rough patch, because it was a solid, well-run company trading at a favorable price. He will give a little on value, too. For instance, he added to his position in Johnson & Johnson earlier this year even though the stock wasn't cheap, he says, "because it's a great company with good momentum." But Ramallo won't compromise on the quality of the basic business. "It's hard for me to stomach a crummy company, even if it has good momentum and an attractive valuation," he says. That's why, Ramallo says, he won't invest in airline stocks or
As the fund's name implies, it can invest in companies of any size. These days, about 70% of the fund's assets are invested in large firms; the rest are invested in midsize and small companies.
Dodge & Cox Stock
Expense ratio: 0.52%
Total return, year to date: 0.7%
One-year total return: -5.1%
Five-year annualized total return: 10.4%
Ten-year annualized total return: 5.1%
This fund, a longtime member of the Kiplinger 25, can be streaky, with a run of good years followed by a couple of relatively subpar years.
Over the past 15 years, the fund's annualized return of 6.9% beat the S&P 500 by an average of 1.2 percentage points per year. Stock benefits from its modest annual expense ratio of 0.52%, one of the lowest in the business for actively managed stock funds.
The past couple of years have been challenging for investors, says
At the same time, the managers' distaste for pricey stocks has caused them to shun utilities and telecommunications-services stocks, two of the past year's best-performing industries. That has hurt Stock's results. But, says Cameron, "we invest for the long term, and patience is rewarded over long periods of time."
Perkins Small Cap Value
Expense ratio: 0.81%
Total return, year to date: 7.3%
One-year total return: 1.6%
Five-year annualized total return: 8.0%
Ten-year annualized total return: 8.2%
Value investing is not just about buying when others are fearful. "It's trying to buy the right companies when others are fearful," says
With that in mind, the managers look for small, high-quality companies that are cheap by a variety of statistical measures. To steer clear of value traps (stocks that are cheap for good reason and likely to keep falling) or to avoid getting in too early, the managers dig deep into each prospective stock. They analyze a firm's industry, its standing in the markets it serves, its competitors and trends that might advance--or retard--the company's growth. Then they craft positive and negative scenarios for each prospective stock. "We get creative about what can go wrong, from new regulations to a plant shutdown," says Reynolds. The range of scenarios helps them develop a risk-reward picture, as well as share-price targets based on the best- and worst-case outcomes for each stock. "The ideal stock has a 15% upside and 10% downside," says Reynolds.
The managers' attention to risk helps dampen volatility. Over the past three years, Small Cap Value's 8.9% return beat its benchmark, the Russell 2000 Value index, by an average of 2.5 percentage points per year and did so with 18% less volatility than the index.
Expense ratio: 0.80%
Total return, year to date: 7.5%
One-year total return: 1.9%
Five-year annualized total return: 8.6%
Ten-year annualized total return: 6.7%
Undiscovered, unloved or misunderstood small companies that trade at undervalued prices fill this fund, a member of the Kiplinger 25. But that doesn't mean the portfolio is loaded with "falling knives and things that look like they're falling apart," as manager
A good example of the kind of stock he looks for is
T. Rowe Price Value
Expense ratio: 0.81%
Total return, year to date: 2.1%
One-year total return: -0.8%
Five-year annualized total return: 11.6%
Ten-year annualized total return: 7.2%
Finn favors stocks with price-earnings ratios and other statistical measures of value that are low relative to historical figures, both to their industry and to the overall market. Lately, he has been "poking around" in bank stocks, such as
Since Finn became manager of T. Rowe Price Value in late 2009, the Kiplinger 25 member has returned 12.3% annualized. That narrowly trailed the 12.6% annualized gain for the S&P 500.