Dow Jones Industrial Average
roared its way back above the 10,000 mark with a two-day, 819-point gain Wednesday and Thursday, long-suffering value mutual funds had a rare moment in the sun. Many boasted double-digit gains from the rally.
Sequoia fund, a once-stellar performer that has recently been dragged down by its heavy concentration in
, posted a two-day 14.3% pop.
Other fallen stars with double-digit midweek gains include the $50 billion
Washington Mutual Investors, 10.6%;
UAM's Clipper Focus, 11.7%;
Oakmark, 10%; and
Neuberger Berman Focus, 10%.
Value managers buy stocks that appear cheap compared with similar stocks or based on objective indicators, like price-to-earnings ratios. But over the past two years, investors have favored pricey stocks in sectors such as technology, while cheaper stocks have languished -- leaving most value managers out of the action. Large-cap value funds, for example, are up only about 5% over the past 12 months, compared with a 35.5% rise for large-cap growth stocks, according to
Even after this week's comeback, most value funds are still down for the year -- Sequoia is off 4.2%, for example, and Washington Mutual is 3.2% in the red. Still, value stalwarts are claiming some vindication from this week's rally.
"For the past 18 months, if you were a value manager you were coming in and you were punched and beaten every day," says Michael Kassen, chief investment officer at
, a value shop.
But value managers aren't yet ready to declare victory.
"It doesn't take a lot of money to move out of these tech giants to move a
,'' says Richard Moroney, co-manager of the
Strong Dow 30 Value fund.
Even the deep value approach is showing signs of life. The Dogs of the Dow, a strategy of investing in the Dow's highest-dividend-paying stocks -- and therefore the biggest value plays in that index -- aren't the sick puppies they were a few days ago. The
SunAmerica Dogs of Wall Street fund was up 13.1% on Wednesday and Thursday.
Much of the boost came from the financial sector, which has been under pressure for most of this year amidst rising interest rates. Stocks such as
, up 13.8% over the past two days, and
, up 23%, are core holdings in many value portfolios.
The question for nervous investors is whether this week's value-stock revival is simply an encore of last year's tease, when cyclicals briefly outpaced the highflying tech sector, but then fell back to earth a few weeks later.
Not surprisingly, the value stalwarts say this time the rally might have more teeth to it because it's coming ahead of first-quarter earnings reports. "The fact that it's coming now may mean that there's more of a rotation'' into cyclicals, Moroney says.
Kassen of Neuberger Berman insists that too many stocks didn't get a fair shake during the long winter of the value slump. "You look at a stock like the
, which has a long-term quality record," he says. "It got to 49 last year and a couple of days ago it was at 16. It was way too oversold."