These Large-Value Funds Have Held Their Ground
See which funds are hanging tough despite the market's shocks.
Most large-value funds hold around one fourth of their assets in financial stocks, so many have been stung in recent months as the market has punished stocks associated with weakening subprime mortgages and housing prices. The average fund in the category is up a modest 4% for the year to date through Nov. 5, 2007. This is quite a switch from recent years, since the typical large-value fund posted five-year trailing returns of 14%.
So which large-value funds have done well thus far in 2007, despite having a heavier financials weighting? Basically, we wanted to find the sort of managers whose solid stock-picking allowed their funds to sidestep some of the subprime fallout. This sort of shock-resistant core fund would be a great starting point when building a portfolio from scratch.
First of all, we looked for funds that are open to new investment and have below-average expense ratios. And since a good record this year doesn't equate to long-term success, we also screened for above-average five-year trailing returns. We wanted to make sure that the current management team was responsible for that record, so we eliminated managers with tenures of less than five years.
As of Nov. 5, 2007, the screen pulled nine funds:
Eaton Vance Large-Cap Value A (EHSTX)
Eaton Vance Tax Managed Value A (EATVX)
Fidelity Equity-Income (FEQIX)
Goldman Sachs Large Cap Value (GSLIX)
Oppenheimer Value A (CGRWX)
Pioneer Cullen Value A (CVFCX)
Robeco Boston Partners Large Cap Value I (BPLAX)
Vanguard Equity-Income (VEIPX)
Vanguard Windsor II (VWNFX)
Interestingly, none of our large-value Analyst Picks made it through this screen. Some are relatively light in financials, while others, such as Muhlenkamp (MUHLX), have been hard hit by stakes in beat-up mortgage-related stocks like Countrywide Financial (CFC) or Washington Mutual (WM).
So, how did the managers of these nine funds stay ahead of the typical large-value offering this year? Simply avoiding some of the hardest-hit mortgage and homebuilder stocks has helped Oppenheimer Value. Others have done well with a few great picks offsetting the lackluster performance of their financial stocks. For example, Goldman Sachs Large Cap Value's manager ventures into nontraditional value sectors such as biotechnology, and savvy picks in that sector have helped keep the fund in the black. Another thing that has helped is international diversification. Pioneer Cullen Value's manager holds roughly 20% of assets in foreign developed and emerging-markets stocks (compared with the typical peer's allocation of 6%), which has buoyed the fund's returns.
Meanwhile, dividend-paying blue chips have worked well for Fidelity Equity-Income and Vanguard Equity-Income. And though the Vanguard fund and its sibling, Vanguard Windsor II, own Countrywide and Washington Mutual, those losses have been buffered by the 200 to 300 other stocks in the portfolios.
Morningstar.com Premium Members can run this screen themselves by clicking here. (Note that the results may change as funds come in or drop out of the screen over time.) Not a Premium Member? You can still run this screen by taking a free, 14-day Premium Membership trial.
Karin Anderson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.