These funds remain poised for success.
This article was originally published in the July 2017 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor here.
Large-value funds have cooled off in 2017 relative to their large-growth counterparts after a strong showing in 2016. Below are some long-held favorites that we still recommend.
American Funds Washington Mutual AWSHX has kept its initial Morningstar Analyst Rating of Gold. The fund's approach prioritizes companies with long histories of paying dividends. Its high-quality leanings help the fund protect well on the downside. It has held up better than large-value peers and its S&P 500 benchmark in market dips, including the July 2015-February 2016 sell-off. While the fund has lagged the S&P since it received its Gold rating in 2011, it's been a mostly up market where this fund won't necessarily lead the way. However, it has surpassed its average large-value peer during the period and retains an impressive long-term record and a deep team of experienced managers.
Dodge & Cox Stock DODGX is another fund that's stayed Gold since 2011. It has handily outpaced its S&P 500 benchmark and the Russell 1000 Value Index during that span. An established team that averages more than two decades with the firm has long plied a contrarian approach that can require patience. For instance, it didn't hold up well in the 2007-09 credit crisis and 2011's correction. However, investors are well served over the long run, and attractive fees help keep it competitive.
MFS Value MEIAX has kept a Silver rating since 2011. Managers Steven Gorham and Nevin Chitkara employ a sensible approach of buying firms with solid franchises, strong free cash flows, and good capital allocation when they're out of favor. The fund has edged the Russell 1000 Value Index, including on a risk-adjusted basis, since it received its Silver rating.
Sound Shore's SSHFX Silver rating has remained intact since 2011, as has its team and process. Two of its three managers started the fund in 1985, and they're supported by a steady analyst team. The fund, which usually holds around 40 stocks, shies away from deep-value fare and limits position sizes. Despite subpar showings in 2011 and 2015, the fund has surpassed the Russell 1000 Value Index since 2011 and has stayed well ahead of its average peer.
T. Rowe Price Equity Income PRFDX was a longtime Analyst Pick that received a Gold rating in 2011. It was downgraded to Bronze in 2014 when veteran manager Brian Rogers announced plans to retire when he hit his 30-year mark at the fund in October 2015. It remained a Morningstar Medalist because incoming manager John Linehan had successfully led T. Rowe Price Value TRVLX for several years and we were confident in the analyst team. The fund has lagged the Russell 1000 Value Index since its initial Gold rating because of cash drag under Rogers and some sluggishness during really robust parts of the market cycle. However, it's been in steady hands under Linehan. While his tenure is short, the fund has maintained its focus on undervalued dividend-payers poised for appreciation and has edged the benchmark on his watch.
T. Rowe Price Value started off with a Neutral rating in 2011 because manager Mark Finn had been at the helm less than two years and didn't bring a record managing money, so we wanted to see some evidence of how well he executed his process. The fund's rating rose to Bronze in March 2014 as we saw him effectively using T. Rowe Price's respected analyst team to execute his relative value approach. It has performed about in line with the Russell 1000 Value Index since the upgrade and has stayed well ahead of peers.