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3 Value Standouts

What helps these funds do well in a tough recent environment?

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Robby Greengold: Over the 10-year period ending September 2019, more than two of every three actively managed large-value funds failed to beat the total returns of the Russell 1000 Value Index. Mid-value funds fared even worse, with nearly nine out of 10 lagging their Morningstar Category index. Across the board, relative results for value funds have been disheartening for proponents of active management. The fierce competition for alpha begs the question, What flavors of value investing are out there, and what are the ingredients for success? Among value investors who take a fundamentals-based, bottom-up approach, a few distinct philosophies stand out. Some value investors focus on finding bargains, which they shop for through the lens of intrinsic valuation--they ask themselves, "what's the worth of this company's assets today, on a per-share basis, and how does that compare to its stock price?" 

The managers at Gold-rated AMG Yacktman are reliably valuation-conscious, which sometimes leads to hefty cash stakes when the team can't find cheap stocks to buy. Contrarian value investors look for stocks that are out-of-favor--companies that the market has punished for one misstep or another but that offer a better fundamental outlook than the market appreciates. The managers of Invesco Comstock, a Silver-rated large-value fund, often go against the grain. They conduct rigorous analysis of a company's financial statements and growth drivers, in addition to macro, industry, and idiosyncratic factors, all in order to gauge a stock's upside potential and downside risk. Weathering the storm of a controversial bet can take time to pay off, but the managers are patient as their investment theses play out. Other value investors prioritize quality over discounts. For example, Silver-rated MFS Value aims to emphasize companies with competitive advantages, solid balance sheets, and relatively high margins. That focus has contributed to the fund's historical resilience over the long run. For almost any fund that picks stocks using fundamental analysis, success relies heavily on the strength and stability of the team involved. Does the team stand out for its ability to construct a benchmark-beating portfolio that responsibly manages risk? For the three value-oriented funds we've discussed here, the answer is a resounding "yes."

Robby Greengold does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.