Value Beats Growth Among Fund Categories in Q1: 6 Picks
Mutual funds that focus on acquiring undervalued securities performed significantly better than growth funds during the first quarter. Losses since the start of 2016 through February provided opportunities to invest in quality stocks at discounted prices, which in turn gave a boost to value funds. Despite the remarkable rebound in March, the major benchmarks still have huge scope to move further north. So, value funds are also poised to experience the same trend. In this scenario, one may invest in fundamentally strong value funds to boost their portfolio at least for the near term.
Value Funds Outperform
During the first quarter, three value mutual fund categories – large, mid and small caps – posted an average return of 2.2% compared with 2.2% loss registered by their growth counterparts, according to Morningstar. Moreover, value mutual funds gained 5.9% over the past one-month period, higher than 5.1% return registered by growth funds during the same time frame.
While all the three value categories emerged as the star performers among the U.S. equity fund categories, the three growth categories were the only ones to finish the first quarter in the red. The small-, mid- and large-cap value mutual funds returned 2.3%, 2.6% and 1.7%, during the first quarter, respectively. These three categories also gained 6.3%, 6.6% and 4.9% in the trailing one-month period, higher than 5.6%, 5.5% and 4.3% registered by small-, mid- and large-cap growth mutual funds, respectively.
Value versus Growth Funds
Value mutual funds are those that invest in stocks trading at discounts to book value and have low price-to-earnings ratio and high dividend yields. Value investing is always popular. After all, who doesn’t want to find stocks that have low PEs, solid outlooks and decent dividends?
On the other hand, mutual funds investing in growth stocks give precedence to capital appreciation over dividend payouts. These funds focus on realizing an appreciable amount of capital growth by investing in stocks that are projected to rise in value over the long term. However, one needs to have a high risk appetite before investing in these funds as they are always prone to higher levels of volatility.
Moreover, stocks that find their place in growth mutual funds generally do not pay dividends and thus growth funds have low or no dividend yields. This is another reason for the popularity that value funds enjoy. Value funds may fetch lower returns than investments in growth securities but provide a continuous stream of income through dividend yields.
6 Top-Ranked Value Funds to Buy
In this favorable environment, we have highlighted two mutual funds each from three value categories that have a Zacks Mutual Fund Rank #1 (Strong Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds have encouraging four-week and three-month returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and no sales load.
Small-Cap Value Funds
Queens Road Small Cap Value (QRSVX) invests generally in securities of small-cap companies located in the U.S. QRSVX seeks to provide capital appreciation by investing the majority of its assets in equity securities of companies.
QRSVX has four-week and three-month returns of 6.7% and 5.4%, respectively. Annual expense ratio of 1.24% is lower than the category average of 1.31%.
Perkins Small Cap Value N (JDSNX) seeks growth of capital. JDSNX invests a large chunk of its assets in common stocks of companies with market capitalization similar to those listed in the Russell 2000 Value Index. The fund predominantly invests its assets in securities of undervalued small-cap companies.
JDSNX has four-week and three-month returns of 7.5% and 3.9%, respectively. Annual expense ratio of 0.56% is lower than the category average of 1.31%.
Mid-Cap Value Funds
Managed Account Mid Cap Value Opportunities (MMCVX) invests the lion’s share of its assets in equity securities of companies with market capitalization similar to those listed in the S&P MidCap 400 Value Index. MMCVX may invest not more than 30% of its assets in foreign securities and in securities that are denominated in foreign currencies.
The fund has four-week and three-month returns of 9.3% and 4.4%, respectively. MMCVX has no annual expense ratio while the category average is 1.19%.
MassMutual Select Mid-Cap Value Service (MLUYX) seeks long-term capital appreciation. MLUYX invests the majority of its assets in stocks of undervalued mid-cap companies.
The fund has four-week and three-month returns of 9.3% and 2.8%, respectively. Annual expense ratio of 1.00% is lower than the category average of 1.19%.
Large-Cap Value Funds
JPMorgan Large Cap Value R5 (JLVRX) invests the majority of its assets in large-cap companies. JLVRX invests in equities, including common stocks and also debt and preferred stocks that can be converted to common stock. These large-cap firms have market capitalization equal to the ones listed on the Russell 1000 Value Index.
JLVRX has four-week and three-month returns of 7.8% and 2%, respectively. Annual expense ratio of 0.60% is lower than the category average of 1.10%.
Commerce Value (CFVLX) seeks capital growth. CFVLX invests a minimum of 65% of its assets in common stocks of companies having market capitalization within the range of the Russell 1000 Value Index. The fund may invest a notable portion of its assets in securities of companies from the financial sector.
CFVLX has four-week and three-month returns of 6.6% and 4.3%, respectively. Annual expense ratio of 0.70% is lower than the category average of 1.10%.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank.
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