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) - Get Morningstar Inc. Report. 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) - Get Virtus Investment Trust NFJ Divid Fd Instl Cl Report
, 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) - Get Franklin Mutual Shares Fund Report
and
TheStreet Recommends
Vanguard Windsor II
(VWNFX) - Get Vanguard Windsor II Fund Report
. 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) - Get Washington Mutual Invs Fd Cl A Shs Report
, 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) - Get Johnson & Johnson Report
and
Chevron
(CVX) - Get Chevron Corporation Report
.
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
,
Coca-Cola
(KO) - Get Coca-Cola Company (The) Report
and
United Technologies
(UTX) - Get n.a. Report
. "Those companies have been beating their earnings estimates, and the outlook is good going forward," he says.
Another steady large-value fund is
Oppenheimer Equity Income
(OAEIX) - Get Invesco Oppenheimer Equity Inc A Report
, which has returned 4.4% annually during the past decade. Portfolio manager Michael Levine seeks companies with below-average prices that have above-average growth prospects. These days he has a big stake in financials. A top holding is
JPMorgan Chase
(JPM) - Get JP Morgan Chase & Co. Report
. After slashing its dividend during the financial crisis, the company has been bouncing back. "Earnings are improving, and there should be a nice step up in dividends over the next 12 or 18 months," Levine says.
He also likes
MetLife
(MET) - Get MetLife Inc. Report
. A recent acquisition from
AIG
(AIG) - Get American International Group Inc. Report
should help the insurer improve its return on equity, Levine says.
To collect rich dividends, consider
Prudential Jennison Equity Income
(SPQAX) - Get PGIM Jennison Global Equity Income Fund- Class A Report
, which yields 4.3% and has returned 3.3% annually during the past decade. The fund owns a mix of dividend-paying stocks. Some holdings are slow-growing stocks that pay dividend yields of more than 5%. Most of the rest of the assets are in companies with faster growth and smaller dividends. The aim is to hold a diversified portfolio that will pay rich yields and also offer some growth potential.
A slow-growth holding is
B&G Foods
(BGS) - Get B&G Foods Inc. Report
, which yields 6.4% and sells food staples, including pickles, beans and maple syrup. "This is a steady business that can grow incrementally by acquiring new brands,"
Prudential
(PRU) - Get Prudential Financial Inc. Report
portfolio manager Shaun Hong says.
A holding with better growth prospects is
America Movil
(AMX) - Get America Movil S.A.B. de C.V.n Depository Receipt Series L Report
, which yields 0.50% and is a dominant provider of cellular service in Mexico. The company has plenty of cash and should use some of it to raise the dividend, Hong says.
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Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
