3 of Our Favorite Value Funds
Our analysts think Royce Special Equity, Oakmark Select, and Neuberger Berman Equity Income are good options for the long term.
Jeremy Glaser: Value funds have been underperforming this year. For example, the large-value category was up only 16% versus a 28% increase in large-growth funds. Investors are looking to top off their value exposure. We're going to look at these three medalist funds.
Tony Thomas: Although Silver-rated Royce Special Equity has struggled for much of 2017, trailing two thirds of its small-value peers, managers, Charlie Dreifus and Steve McBoyle continue to maintain portfolio's quality orientation that has served investors over the long term.
The managers focus on clean accounting, low debt, and high returns on invested capital. The portfolio's debt to capital ratio in 2017 is less than half that of the category average and the Russell 2000 Index. Although the quality biases have kept the fund out of healthcare and financials leading to some missed opportunities in 2017, the fund's top sector weighting, consumer cyclicals, includes high-quality firms like The Children's Place, which has had an excellent 2017 and market some of its wares on Amazon. Although investors have struggled with this fund during this year, the managers have maintained the quality orientation that should help this fund achieve long-term success.
Greg Carlson: Oakmark Select earns a Gold Morningstar Analyst Rating. We have a lot of confidence in manager Bill Nygren, who has worked on the fund since its 1996 inception. He is willing to invest in any company that trades at a significant discount to his estimate of their private value. That means both growth stocks and value stocks fit in this portfolio and it lands in the large-blend Morningstar category.
In 2017, the fund has lagged more than 90% of its peers because of some of those value-oriented picks. General Electric and two energy companies, Apache and Chesapeake Energy, are both down sharply year to date. However, the fund has generated a solid absolute return of 15% for the year to date, and it has an excellent long-term record. We think it's a fine long-term holding.
Robby Greengold: Neuberger Berman Equity Income is a Silver-rated fund that we continue to have a lot of confidence in. During 2017, during this market rally we've seen over the past year, the fund's total returns have lagged most of the other funds in the Morningstar large-value category. That's to be expected given this fund's mandate. This is a fund designed to generate an above-average income stream and respectable absolute returns while maintaining a conservative risk profile. It's done exactly that over the past year and over the past decade. It may not have gained as much as many of its peers have over the past year, but its risk-adjusted performance has been among the best in the category.
The fund is typically far less volatile than the typical large-value fund and historically, it's offered excellent downside protection. With skilled managers and a distinctive approach, this fund remains a great option.
Tony Thomas does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.