Value Funds Could Take the Lead
"We want businesses that will be successful 10 or 15 years down the road," she says.
Holdings include Johnson & Johnson (JNJ), Exxon Mobil (XOM) and 3M (MMM). Such high-quality names tend to be resilient in downturns, and the fund outdid most competitors during the turmoil of 2008. During the past five years, MFS returned 0.3% annually and surpassed 74% of peers.
Mead likes some big banks, including JPMorgan Chase (JPM) and Goldman Sachs (GS). The giants have above-average capital levels and market positions that have become stronger since many competitors vanished during the financial crisis.
American Century Value is another fund that excels in downturns. The fund buys high-quality stocks that are in the cheapest third of the market as indicated by price-earnings ratios and other measures. In 2008, American Century outdid 97% of peers. Holdings include such giants as Procter & Gamble (PG) and AT&T (T).Portfolio manager Michael Liss seeks dominant companies with high returns on capital. A holding is CareFusion (CFN), a provider of surgical instruments and equipment used for infusion therapy. "They have leading market shares in niches where there is not a lot of competition," says Liss. Another holding is Republic Services (RSG), which operates landfills and waste management operations. The stock suffered after a recent earnings disappointment. But Liss says that the company has a strong balance sheet and little competition in its markets. Invesco Van Kampen American Value focuses on mid-caps. During the past five years, the fund has returned 2.0% annually, outdoing 68% of mid-cap value competitors. The portfolio managers screen through underperforming companies that are earning less than they have in the past. The aim is to find disappointing businesses that are starting to show improvement. "We like situations where analysts hate the stock, but the earnings outlook is improving," says portfolio manager Sergio Marcheli. A holding is Snap-on (SNA), which supplies tools to auto repair shops and airlines. During the financial crisis, many customers trimmed orders. But lately the business has been improving as airlines upgrade tools. Marcheli also owns Fidelity National Information Services (FIS), which provides technology that banks use to process transactions and manage back offices. He says that banks are spending more on technology to meet new regulatory requirements. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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