The Best Value Funds

Value stocks staged a comeback in 2022: The Morningstar US Value Index outperformed the Morningstar US Growth Index by 36 full percentage points last year. Long-suffering value investors thought, “It’s about time,” as value stocks had underperformed growth stocks in eight of the last 10 calendar years. As a result, even after their breathtaking 2022 outperformance, value stock returns lag growth stock returns for the trailing five- and 10-year periods. And value stocks are lagging behind so far in 2023, too.

Should Investors Buy Value Stock Funds Today?

Investors who own core stock mutual funds or exchange-traded funds—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. It’s unlikely they need to add more value to their portfolios, as they already have plenty.

However, some investors may think value stocks are the place to be, and they’d like to tilt their portfolios toward that style, especially given their relative underperformance to growth stocks over longer time periods. For such investors, there are many fine value stock ETFs and mutual funds to choose from. Here, 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 top Morningstar Analyst Rating of Gold. (We expect such highly rated funds to outperform over a full market cycle.)

12 Best Value ETFs and Mutual Funds for 2023

These ETFs and mutual funds focus on value stocks and have at least one Gold-rated share class in March 2023.

1) American Funds American Mutual AMRMX

2) Diamond Hill Large Cap DHLYX

3) Dodge & Cox Stock DODGX

4) Harbor Mid Cap Value HAMVX

5) JPMorgan Equity Income HLIEX

6) JPMorgan US Value VGINX

7) LSV Small Cap Value LSVQX

8) MFS Value MEIIX

9) Oakmark OAKMX

10) Vanguard Mid-Cap Value Index/ETF VMVAX VOE

11) Vanguard Small Cap Value Index/ETF VSIAX VBR

12) Vanguard Value Index/ETF VVIAX VTV

How Do Value Mutual Funds and ETFs Work?

Value funds are bargain-hunters: They all want to buy stocks below what they’re worth and then hold on as those stocks (hopefully) reach fair value. They’re unwilling to pay a premium to invest in a stock, no matter how appealing its prospects.

However, there are many different ways that value stock managers invest. Some take what’s known as a deep-value approach, focusing on fundamental valuation benchmarks, such as price/earnings, price/book, or price/sales, and little else. Others, meanwhile, blend low valuations with a quality screen, thereby avoiding stocks of less profitable and more troubled businesses. Some managers will go where the values are, no matter the size of the companies, while others will skew toward the stocks of large companies or, at the other end of the spectrum, the stocks of smaller companies.

Other differences exist, too. Some value funds, for instance, place a greater emphasis on dividend-paying stocks, while other value funds don’t have dividends on the brain—income is secondary, if it’s considered at all. Some value funds maintain compact portfolios consisting of 50 or so securities while others own hundreds of stocks. Those preferences can lead to different performance and risk profiles. And of course, some value funds are led by managers who actively pick stocks while other value funds simply index.

The bottom line: Do your research before you buy. Our Analyst Ratings are just a starting point.

How to Find Value Funds for the Long Term

Given their high Morningstar Analyst Ratings, we expect the top-rated value stock funds on our list to outperform over a full market cycle.

That being said, investors may want to expand their search for value funds beyond this list, using parameters that matter to them. Here are just two additional ways to find value ETFs and mutual funds to investigate further.

• Some investors may prefer a list of top-rated funds that invest in value stocks around the globe, not just in U.S. names. Using the Morningstar Investor screener, select Investment Type (either ETF or Mutual Fund), scroll down to Criteria to find the Morningstar Category drop-down menu and select Global Large-Stock Value (if you want funds that invest in both international and U.S. large-cap value stocks) or Foreign Large Value and Foreign Small/Mid Value (if you want to exclude U.S. value stocks). Then, under Ratings, choose Gold for the Morningstar Analyst Rating.
• Want to find a complete list of value stock ETFs or mutual funds available today, not just those with our highest Analyst Ratings? Using the Morningstar Investor screener tool, select Investment Type (either ETF or Mutual Fund) and choose the Morningstar Category—Large Value, Mid-Cap Value, or Small Value—that you prefer. Or choose all three.

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