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5 Large-Value Funds in Outflows That Investors May Want to Reconsider

Take a fresh look at these funds.

We have identified five funds in the large-value Morningstar Category that have experienced net outflows over the trailing one-year time frame through January 2018 but have proved their merit over a full market cycle. While styles will fall in and out of favor, investors who have stuck with these funds have been rewarded over the long haul.

American Beacon Large Cap Value

ALVAX

American Beacon Large Cap Value, with a Morningstar Analyst Rating of Bronze, has posted poor performance since 2014 because of its proclivity for deep-value names, which were particularly out of favor in 2017. Despite modest differences in the way that the four subadvisors manage money, the fund still tends to lean toward deep-value as seen in the Morningstar Style Box.

While recent missteps have hurt it, the fund still lands in the top quartile of its peer group over the trailing 15-year time frame. And while its 2017 return of about 17% trails growth peers by a wide margin, it topped the Russell 1000 Value Index and had a correlation of negative 0.07 to the Russell 1000 Growth Index, demonstrating this fund’s diversification benefits. The fund experienced just under $2 billion of outflows in 2017, but investors who are patient should reap the benefits of this deep-value option.

American Century Equity Income

TWEAX

Silver-rated American Century Equity Income experienced outflows of almost $1 billion in 2017 and landed in the bottom quartile of the large-value Morningstar Category over the same time period.

Nevertheless, the fund continues to look attractive over longer time frames, and its superior downside protection, coupled with its preference for higher-quality names, offers significant benefits to investors. Over a full market cycle, this fund has proved its ability to damp volatility and, as a result, reward investors with excellent risk-adjusted returns. The team’s emphasis on long-term prospects rather than short-term results may lead to some painful periods of underperformance, but investors who have stuck with it have been rewarded.

BlackRock Equity Dividend

MDDVX

BlackRock Equity Dividend experienced outflows of almost $3 billion in 2017 despite posting an above-average return of 16.43% relative to peers. Nevertheless, the fund looks unimpressive relative to growth-oriented funds--similar to the other funds highlighted here. This Bronze-rated fund focuses on identifying companies that pay dividends and are attractively valued. However, it will sacrifice yield to obtain an attractive, sustainable growth rate. Despite its more core-leaning tendencies, this fund still underperformed the broad Russell 1000 Index by over 500 basis points in 2017. The dispersion between the Russell 1000 Growth and Value indexes in 2017 was notable. However, attractive long-term performance here supports the case for investors to stay put.

Dreyfus Strategic Value

DAGVX

Dreyfus Strategic Value saw a more modest outflow in 2017: about $150 million. However, given that this is the smallest fund in our set of examples, this is still material. The fund trailed its average peer in 2017 but continues to demonstrate its merit over longer periods of time. This Silver-rated fund, upgraded from Bronze in November 2017, does come with above-average risk but has compensated for this by rewarding investors with sufficient outperformance. Overall, it tends to outperform in up markets but can lag in downturns. Despite its recent challenges and the broader challenges of value managers, this remains a worthy option for investors who can withstand the risk profile of this strategy.

JHancock Disciplined Value

JVLAX

JHancock Disciplined Value posted an attractive gain of 18.92% in 2017, but this was not enough to halt the recent trend of outflows. Altogether, the fund had net outflows of about $1.5 billion in 2017. The team combines quantitative and qualitative analysis to ultimately come up with a high-quality portfolio of up to 100 names and have proved the efficacy of the approach over time. Consistency has been a highlight here, and the recent outflows may afford this fund more flexibility. This is a good option for investors seeking large-cap-value exposure.

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