4 Value Funds Enduring the Bear Market

With a challenging 2022 in the books, large-value equity funds lost less than their growth counterparts. The market has valued near-term earnings more as rising interest rates have hurt growth stocks’ valuations. One relative bright spot: dividend-focused large-value funds. Let’s look at how four Morningstar Medalists in that group have fared since earning their current Morningstar Analyst Rating. Most of these strategies have a knack for protecting capital in down markets, which propelled them to top-third performance in 2022.

Since Vanguard Equity-Income VEIRX first earned its Analyst Rating of Silver in February 2013, the strategy’s 11.3% annualized gain beat the Russell 1000 Value Index’s 9.7%, and its risk-adjusted results landed it in among the large-value Morningstar Category’s top performers thanks to below-average volatility. Its two subadvisors, Wellington Management and Vanguard’s in-house quant equity group, focus on stocks with above-average dividend yields. This approach typically keeps volatility down and buoys the fund in down markets. It held up well in 2018′s market pullback and 2020′s first-quarter pandemic driven correction. In 2022, the strategy lost less than the index and category average thanks to good picks across the board, such as pharmaceutical firm Eli Lilly LLY and insurance company MetLife MET.

JPMorgan Equity Income’s OIEIX rating was upgraded to Gold from Silver in June 2019. Longtime lead manager Clare Hart focuses on competitively advantaged dividend payers with consistent earnings, high returns on invested capital, and strong management teams. Since the strategy’s June 2019 rating upgrade through December 2022, its 11.2% gain outpaced the Russell 1000 Value’s 9.6% and the category norm’s 10.2%. The fund tends to shine by losing less during downturns, which the strategy has consistently done during Hart’s tenure. For example, the strategy lost less than the index in the first-quarter 2020 bear market and in 2022, thanks mostly to industrials and healthcare picks, such as aerospace and defense firm Northrop Grumman NOC and multinational pharmaceutical firm Bristol-Myers Squibb BMY.

AMG River Road Dividend All Cap Value’s ARDEX managers target an above-average index yield by pursuing companies across the market-cap spectrum that can grow their dividends over several years. Since this strategy earned its Bronze rating in February 2015, its 6.8% annualized gain lagged the Russell 1000 Value Index’s 8.0% because of a below-average stake in healthcare and a handful of underperforming communication-services picks, such as global media firm Omnicom OMC and movie theater chain Cinemark Holdings CNK, which the managers have since sold. In 2018, the strategy held up well because it was underweight financials and had success with a handful of industrials picks, such as fastener distributor Fastenal FAST. The strategy lost less than the index and category norm in 2022 as its financials picks such as insurance giant Progressive PGR and regional bank M&T Bank MTB buoyed the fund.

Silver-rated Boston Partners All Cap Value’s BPAVX experienced manager focuses on companies with attractive valuations, business momentum, and strong fundamentals. Since this strategy first earned its rating in November 2016, its 10.1% annualized gain outpaced the Russell 1000 Value Index’s 9.0% and the typical large-value category peer’s 9.4%. This strategy has typically gotten ahead by capturing more upside during market rallies, like it did in 2019, owing to stock selection within the consumer discretionary and financials sectors, such as Japanese electronics multinational Sony SONY and insurer Aon AON. While the strategy hasn’t typically provided protection in down markets, it did in 2022 as financials and healthcare picks such as pharmaceutical and medical equipment supplier McKesson MCK and insurance firm White Mountains Insurance Group WTM outperformed.

A version of this article was published in the December 2022 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website.