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

Panicked investors are selling large-value funds that are stable, yield high and beat the markets.
Author:
Publish date:

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 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 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 Report

and

Vanguard Windsor II

(VWNFX) - Get 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 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 Report

and

Chevron

(CVX) - Get 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

(T) - Get Report

,

Coca-Cola

(KO) - Get Report

and

United Technologies

. "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 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 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 Report

. A recent acquisition from

AIG

(AIG) - Get Report

should help the insurer improve its return on equity, Levine says.

To collect rich dividends, consider

Prudential Jennison Equity Income

(SPQAX) - Get 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 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 Report

portfolio manager Shaun Hong says.

A holding with better growth prospects is

America Movil

(AMX) - Get 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.

>To submit a news tip, send an email to:

tips@thestreet.com

.

Follow TheStreet.com on

Twitter

and become a fan on

Facebook.

Readers Also Like:

>>Top Hedge Fund Stock Buys

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.