The Best Value Funds
These value-focused mutual funds and ETFs all earn Morningstar Analyst Ratings of Silver or better.
One look at the red and green pattern on the Morningstar U.S. Market Barometer and you know that things haven’t changed: Growth stocks continue to crush their value counterparts for the trailing one-, three-, and five-year periods. Truly bad performance by traditional value fare--energy and financials stocks in particular--has beaten down value strategies. On the other side, the ongoing ebullience of technology stocks has buoyed growth approaches.
That being said, there may be good reason for some investors to explore value-oriented mutual funds and exchange-traded funds today. If you’ve been using discrete funds for your growth and value exposures, for instance, you may find that your once-balanced style portfolio is woefully out of whack: Specifically, it may be light on value given growth’s extended run. Or you may be among those who think value stocks are finally going to have their day and you’d like to tilt your portfolio toward that style.
(Remember, investors who own core stock mutual funds or ETFs--especially those tracking a broad market index such as the S&P 500 or Wilshire 5000 Index--already have exposure to value stocks. They’re diversified. So the conversation about which style will thrive is less important, as they have exposure to both.)
There are many fine value funds and ETFs to choose from. Today we’re shining a spotlight on those that land in the U.S. large-value, mid-value, or small-value Morningstar Categories and have at least one share class that earns a Morningstar Analyst Rating of Silver or better. (We expect such highly rated funds to outperform over a full market cycle.)
For most investors, your search can begin and end in the large-value category, and more than three dozen mutual funds and ETFs in this group earn our top ratings.
But choosing a value fund isn’t as simple as throwing a dart at this list. Don’t over-rely on a fund’s category placement to tell you everything you need to know; there’s a good deal of variety among strategies in the large-value category.
Some value funds, for instance, place a greater emphasis on dividend-paying stocks than others. (And not all dividend-seekers are alike: Several favor high-yielding stocks, while many prefer dividend growers carrying lower yields.) Other large-value funds don’t have dividends on the brain--income is secondary, if it’s considered at all. Those preferences can lead to different performance and risk profiles.
A few funds on the list, such as AMG Yacktman Focused (YAFFX), maintain compact portfolios consisting of fewer than 50 securities; others, such as Vanguard Equity Income (VEIPX), own nearly 200 securities. And many of the passive funds and ETFs on the list own more than 2 or 3 times as many names. Concentrated funds can have different risk/reward profiles than their more-diffuse counterparts.
You’ll even find some variance among the index funds in the category. Vanguard Value ETF (VTV) tracks the CRSP U.S. Large Cap Value Index; iShares Core S&P U.S. Value ETF (IUSV) tracks the S&P 900 Value Index. The former applies generous buffer rules that help limit turnover and transaction costs, which can lead to a bit of style drift; the latter fund applies no such rules.
The bottom line: Do your research before you buy. Our Analyst Ratings are just a starting point.
While most investors will likely be able to find a strategy that suits their needs in the large-value category, those with a greater risk tolerance may choose to move down the market-cap ladder and explore smaller companies. More than 30 mutual funds and ETFs in the mid-cap value and small-cap value categories are rated Gold or Silver. Note: Funds that focus on smaller companies sometimes stop accepting new money so that they can continue to effectively invest in smaller fare; check the fund’s “status” field on our quote page to find out if a fund you’re interested in is open to new investment.
Susan Dziubinski does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.