All in the Name: Large-Values Are a Great Buy

NEW YORK (TheStreet) -- Unnerved by the erratic markets, investors have been dumping stock funds. Large-value funds have suffered especially heavy redemptions, recording $7.7 billion in outflows this year, according to Morningstar(MORN). The selling of large-value funds appears indiscriminate, as shareholders have dropped strong-performing portfolios along with also-rans.

But instead of selling large-value funds now, investors should be buying. Top funds in the category can produce relatively steady results in hard times. Large-value portfolios tend to be stable because they often focus on blue chips that sell at modest prices. Such stocks proved relatively resilient during the downturn of 2008.

Big stakes in dividend-paying sectors -- such as utilities and telecommunications -- are enabling many large-value funds to deliver rich yields of more than 2%, a tempting source of income at a time when bond yields are skimpy.

Consider Allianz NFJ Dividend Value(NFJEX), which has recorded outflows of $418 million this year. During the past decade, Allianz NFJ has returned 5.7% annually, outdoing the S&P 500 by 7 percentage points and topping 97% of large value competitors. Focusing on dividend-paying blue chips, the fund yields 4.1%, and it has delivered a relatively steady ride, outperforming the S&P 500 in 2008.

Other compelling large-value funds that have suffered more than $500 million in outflows include Columbia Value & Restructuring(UMBIX), Mutual Shares(TESIX) and Vanguard Windsor II(VWNFX). All those funds finished in the top half of their category for the past decade.

Investors who seek a cautious choice should consider American Funds Washington Mutual(AWSHX), which has returned 2.5% annually during the past decade. The fund only buys stocks that have paid dividends in nine of the past 10 years. The resulting portfolio includes a roster of blue chips, such as Johnson & Johnson(JNJ) and Chevron(CVX).

Holding such rock-solid companies, Washington Mutual can lag in bull markets, but it compensates by limiting losses in downturns, says Todd Rosenbluth, a mutual fund analyst for S&P, which recommends the fund. Rosenbluth says that prospects are strong for many holdings in the fund, including AT&T(T), Coca-Cola(KO) and United Technologies(UTX). "Those companies have been beating their earnings estimates, and the outlook is good going forward," he says.