This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Deep-Value Funds for Patient Investor

Stocks in this article: TAVFXOAKIXVWNDXTESIX

NEW YORK ( TheStreet) -- Deep-value funds struggled last year.

Among the worst performers was Third Avenue Value (TAVFX), which lost 20.7% and lagged 96% of peers in the world stock category, according to Morningstar. Other funds that finished in the bottom half of their categories include Oakmark International (OAKIX), Vanguard Windsor (VWNDX) and Mutual Shares (TESIX).

Seeing the bad results, investors are dumping deep-value funds. But that could be a mistake. For patient investors, deep-value funds can be intriguing holdings that help to diversify portfolios.

The deep-value funds buy unloved stocks that sell at big discounts. The portfolios of the deep-value funds tend to be even cheaper than the holdings of typical value funds. While the average large value fund has a P/E of 11.64, Vanguard Windsor has a multiple of 9.96.

While deep-value stocks can deliver strong long-terms returns, they tend to take investors on rough rides, sinking hard during downturns and soaring in bull markets. During the past year, deep-value stocks were poor performers as investors fled shaky financials and fled to the safety of rock-solid blue chips.

When markets sank in 2008, deep-value funds were crushed. Many shareholders sold near the bottom, but that was a bad decision because the funds soared in 2009 when the markets rallied. "The deep-value stocks were hammered, but they bounced back because most of the companies survived the financial crisis and did better than investors expected," says Russel Kinnel, Morningstar's director of mutual fund research.

One of the funds that suffered big losses was Vanguard Windsor. Hurt by troubled financial holdings, the fund lost 41.1% in 2008 and lagged 81% of its peers. With investors fleeing the fund, total assets dropped from $14.7 billion in 2006 to $6.6 billion in 2008. Then in 2009, the fund gained 34.7%, outdoing the S&P 500 by 8 percentage points and topping 91% of its large value peers.

To take advantage of deep-value funds, investors must be prepared to hold a fund for years. While many investors buy when the funds are hot, the best time to try a deep-value fund is after it has recorded a cold streak. Now that many of the funds have delivered weak 12-month returns, this year could be a time to try the deep-value approach.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • 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 Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs