Most value funds have posted strong returns over the past two years, which oddly makes it tough to find one that truly stands out.
Ghost Rider: Who's Running Your Fund?
Anatomy of a Diversified Portfolio
By now we all know the story of how value funds have come to be somewhat chic. While growth funds rode the mercurial tech sector to high highs in 1998 and 1999 and to low lows ever since, value managers humbly sifted Wall Street's dustbin. Their bargain-hunting and tech-light approach paid off.
Over the past three years, the average value fund boasts an 8% annualized gain, compared with a 1% loss for the
index and a 3% gain for the average tech-heavy growth fund. Small-cap value funds were the fund world's top-performing category last year with a 17.3% average gain.
Given the record billions of dollars that gushed into growth and tech funds in 1999 and 2000, many investors may be
looking to balance out their portfolios with one or two solid value funds (if you're not sure how much of your portfolio should be in each type of investment category, here's a
blueprint for you based on the Wilshire 5000 Total Stock Market index).
Problem is, it's often tough to discern the wheat from the chaff when a style is in or out of favor because most funds applying that strategy will look similarly great or lousy. To help you out, we applied various screens to the value funds out there to come up with some top picks, much as we did in the battered
growth sector a few weeks ago.
First, we screened out any big-, mid- or small-cap value funds that didn't beat their average peer over the past one, three and five years with the same manager at the helm, using data from Chicago research house Morningstar. Then we yanked out any funds that are closed to new investments, charge above-average annual fees, carry investment minimums north of $10,000, or are especially tiny.
Of the 632 value funds out there, fewer than 60 cleared our hurdles. Let's check out the top five in each category, ranked by their annualized returns over the past five years, and then look at one or two other solid candidates.
Large-cap value funds
Mid-cap value funds
Small-cap value funds