In fickle worlds -- such as high school and investing -- squares can all of a sudden become cool.
How to Build a Low Maintenance Portfolio
Big- Cap Growth Funds That Weathered the Storm
A Smorgasborg of Solid Sector Funds
From 1995 through 1999, big-cap value funds, which typically shop for bargains and have tech-light portfolios, lagged the
as tech stocks lorded over the market. Last year and so far this year, though, they're holding up far better than the market and growth funds, reminding us why most portfolio models suggest you own both growth and value funds.
Over the last year the average big-cap value fund is only down 3.2%, compared with a 24% loss for the S&P 500 and a 37.6% loss for the average big-cap growth fund, according to
. The reason: Funds and investors that loaded up on pricey tech, media and telecom stocks over the past couple of years have fallen much harder than folks with a more price-conscious approach.
Source: Morningstar. Annualized returns through April 6.
Consider value funds. In the second half of the 1990s, they were losers. Now, they're everybody's favorite after 2000. For today's Big Screen, let's look for big-cap value funds that beat their peers in both scenarios.
Some value funds dipped into the tech pool to goose returns in the 1990s, but they're sagging now. At the same time, some value funds trailed their peers when the markets winds were at their back
when they faced a harsh headwind.
To uncover the winning funds, we sifted the category for funds that beat their average peer in 1998, 1999, 2000 and so far this year. Of the more than 340 out there, only eight made the cut. Here they are, ranked by their losses so far this year.
A prevalent theme among many of the funds on our list is a focus on companies with an overlooked growth catalyst and a stock that's cheap relative to its industry peers.
One example is the no-load
PBHG Large Cap Value fund that sits atop our list. Manager Ray McCaffrey, who has held the reins since the middle of 1999, screens the big-cap market for stocks that combine low valuations vs. their peers and rising earnings growth.
PBHG is best known for high turnover in its portfolios and portfolio manager ranks, and this fund exemplifies both. Like most of his colleagues McCaffrey trades frequently as stocks hit his price targets, and he's also the fund's third manager since its 1997 inception.
That said, the fund's record is solid. It beats at least 93% of its peers and the S&P 500 over the past one- and three-year periods, according to Morningstar.
You can find a somewhat similar approach with a more tenured manager if you look at the no-load
ICAP Select Equity fund, where Robert Lyon has called the shots since the fund's 1997 launch. Like McCaffrey, Lyon looks for stocks with attractive valuations versus its peers and a growth catalyst like a new product offering or potentially positive management change.
The fund is racy, however. It holds Lyon's favorite 15 to 25 stocks from his broader, more diversified
ICAP Equity fund, which he's run for the past six years. That fund only barely missed our cut, so it might be worth a look for investors looking for a more diversified approach.
Those folks might also want to check out the broker-sold
Alliance Growth & Income fund. Paul Rissman ranks the ocean of big-cap stocks looking for companies that have both an attractive stock price and rising earnings. From that list, he selectively builds a portfolio with sector-weightings roughly in line with the S&P 500's.
That strategy might not send your pulse racing, but the fund's returns might. Rissman has topped his peers in each of the past six years and tops at least 70% of his peers over the past one-, three- and five-year periods, according to Morningstar.
Another fund with consistent outperformance is the no-load
Gabelli Westwood Equity fund, where Susan Byrne has been at the helm since its 1987 inception. Byrne tries to find stocks of companies positioned to benefit from long-term growth trends. Within that group she looks for stocks where she thinks Wall Street hasn't yet priced-in earnings growth.
"Trend investing" is often more marketing shtick than savvy strategy, but it has worked out well here. Byrne tops her peers over the past one-, three-, five- and 10-year periods, according to Morningstar.
As you might imagine, there are a slew of solid value funds that didn't make our cut due to a rough ride so far this year. Let's check out four. Here they are ranked by their losses so far this year.
Many investors looking for more value-fund exposure should at least consider the no-load
Vanguard Value Index fund, where index-fund guru Gus Sauter tracks the
S&P/Barra Value Index
. That index is essentially comprised of the S&P 500 stocks with the lower price-to-book multiple. That typically leads to a great emphasis on energy and financial stocks than pricier tech or health care shares.
Over the last five years the fund, which sports a tiny 0.22% annual expense ratio, averages 13.3% annual return. That tops about three-quarters of its peers, according to Morningstar.
More aggressive investors might want to check out the broker-sold
Smith Barney Fundamental Value fund, where John Goode has been in charge for more than 10 years. Goode blends battered growth stocks with more traditional value plays in the fund's diversified portfolio. The fund's above-average stake in the sagging tech and telecom sectors has kept it behind its peers this year, but it beats at least 90% of big-cap value funds over the past three-, five- and ten-year periods.
Finally, more traditional value investors might want to check out the no-load
Selected American fund and the broker-sold
Davis New York Venture fund, both run by Chris Davis and Kenneth Feinberg. The pair essentially sifts the market, trying to buy shares of solid companies whose shares don't reflect their current value and future growth.
The funds have both topped their average peer in each of the past six years, though they do lag over the past year. One thing to keep in mind is that these managers have a taste for financial stocks. Each has more than 40% of their money in the financial sector, more than twice the sector's weighting in the S&P 500.
One name that's noticeably absent is Bill Miller of the
Legg Mason Value Trust fund, the only mutual fund manager to top the S&P 500 in each of the past 10 years. More aggressive investors should definitely consider Miller's funds, he also runs the
Legg Mason Opportunity Trust fund.
Unlike most value managers who tend to ignore pricey stocks in the technology and telecom sectors, Miller has a broader and less rigid view. Instead of relying on traditional metrics like a stock's price to earnings multiple, he looks at a company's free cash flow. As long as you're comfortable with Miller's distinct streak, you should give his funds a look. His willingness to own pricier fare kept the Value Trust fund behind 83% of its peers over the past year, but the fund also tops all of its peers over the past five- and 10-year periods, according to Morningstar.