Value stocks have been in the driver’s seat lately: As of this writing, the Morningstar US Value Index has outrun the Morningstar US Growth Index by 14 full percentage points so far this year. One could certainly argue that value stocks theoretically have more room to run, given their still-striking underperformance of growth stocks for the trailing three-, five-, and 10-year periods.
Despite the recent runup, there may be good reason for some investors to explore value-oriented mutual funds and exchange-traded funds today. If you’ve been using discrete funds for your growth and value exposures, for instance, you may find that your once-balanced style portfolio may need rebalancing. Specifically, it may be light on value given growth’s extended run. Or you may be among those who think that value stocks are, in fact, staging a comeback, and you’d like to tilt your portfolio toward that style.
(Remember, investors who own core stock mutual funds or ETFs--especially those tracking a broad market index such as the S&P 500 or Wilshire 5000 Index--already have exposure to value stocks. They're diversified. So, the conversation about which style will thrive is less important, as they have exposure to both.)
There are many fine value funds and ETFs to choose from. Today we're shining a spotlight on those that land in the U.S. large-value, mid-value, or small-value Morningstar Categories and have at least one share class that earns a Morningstar Analyst Rating of Silver or better. (We expect such highly rated funds to outperform over a full market cycle.)
For most investors, your search can begin and end in the large-value category. The table below features funds and ETFs from that category with at least one share class that earns a Gold or Silver fund analyst rating.
But choosing a value fund isn't as simple as throwing a dart at this list. Don't over-rely on a fund's category placement to tell you everything you need to know; there's a good deal of variety among strategies in the large-value category.
Some value funds, for instance, place a greater emphasis on dividend-paying stocks than others. (And not all dividend-seekers are alike. Several favor high-yielding stocks, while many prefer dividend growers carrying lower yields.) Other large-value funds don't have dividends on the brain--income is secondary, if it's considered at all. Those preferences can lead to different performance and risk profiles.
A few funds on the list, such as AMG Yacktman Focused YAFFX, maintain compact portfolios consisting of fewer than 60 securities; others, such as Vanguard Equity-Income VEIPX, own nearly 200 securities. And many of the passive funds and ETFs on the list own more than 2 or 3 times as many names. Concentrated funds can have different risk/reward profiles than their more-diffuse counterparts.
You'll even find some variance among the index funds in the category. Vanguard Value ETF VTV tracks the CRSP US Large Cap Value Index; iShares Core S&P U.S. Value ETF IUSV tracks the S&P 900 Value Index. The former applies generous buffer rules that help limit turnover and transaction costs, which can lead to a bit of style drift; the latter fund applies no such rules.
The bottom line: Do your research before you buy. Our Analyst Ratings are just a starting point.
While most investors will likely be able to find a strategy that suits their needs in the large-value category, those with a greater risk tolerance may choose to move down the market-cap ladder and explore smaller companies. Two dozen mutual funds and ETFs in the mid-cap value and small-cap value categories have at least one share class rated Gold or Silver; they appear in the table below. Note: Funds that focus on smaller companies sometimes stop accepting new money so that they can continue to effectively invest in smaller fare; check the fund's "status" field on its Morningstar.com quote page to find out if a fund you're interested in is open to new investment.
Disclosure: Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. Neither Morningstar, Inc. nor its investment management division markets, sells, or makes any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.
The author or authors own shares in one or more securities mentioned in this article.Find out about Morningstar’s editorial policies.
