Beware the Value Boom
There are plenty of snazzy new value funds on the shelf, but you should probably stick with dustier ones that have been on the market for years.
The Big Screen: Core Stock Funds
10 Questions With Dividend Disciple John Snyder
Big Screen Archive: Solid Funds and How They Fit Together
The ranks of tech-light, bargain-hunting value funds have quietly but dramatically swelled in recent years. Today there are some 630 on the market, compared with 389 just five years ago, according to Chicago research house Morningstar. The geyser of young offerings is at least partially the result of fund companies with growth-heavy menus trying to branch out, now that value funds have seen higher returns and inflows than their tech-sick growth peers.
What many fund companies and investors have discovered, however, is that a rising tide of value funds doesn't mean there's a rising tide of talented managers to run them. And launching a value fund doesn't make you a successful value investor, as illustrated by the disappointing early returns of the (JSVAX)Janus Strategic Value fund and other rookies.
The situation is yet another example of the herd mentality and bloated state of the fund business. It also underscores the fact that there's little reason for you to bother sifting through the deepening bin of young funds when there are plenty of solid choices with longer track records."This really adds to the clutter you have to wade through to get to good funds," says Bryan Olson, a managing director at the Charles Schwab Center for Investment Research. "Just about any type of value fund you'd want to buy is already available and has a solid, veteran manager. You can afford to be selective," adds Scott Cooley, a senior fund analyst at Morningstar. Of course there's been a gush of new funds of virtually every flavor over the past 10 years. Thanks to a bonny economy and a bull market that imbued pro and amateur investors with a nearly religious faith in 20% annual returns, mutual funds now outnumber the number of stocks traded on the New York Stock Exchange. The glut of new growth funds that launched during and after the tech mania is well documented, but value funds have had their own mania mainly, due to two familiar catalysts: solid returns relative to the S&P 500 and healthy inflows.
|The Value Boom
The number value funds has jumped over the past five years
|Source: Morningstar. Data through Jan. 31.|
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV