Jeremy Glaser: The underperformance of value stocks is hardly a new phenomenon, and it's continued so far in 2017. The Morningstar US Value Index is up only about 1.5% this year, compared to over 10% for the broad market. But underperformance is no reason to abandon value. We asked our fund analysts to choose three value funds that they think have a good shot of outperforming their categories over time.
Katie Reichart: Silver-rated Fidelity Low-Priced Stock is a true active fund worth owning. Joel Tillinghast has run the fund since 1989 and is one of the industry's brightest managers. He uses an eclectic, low turnover value approach that looks for financially sound companies with competitive advantages. The fund can own more than a third of assets in non-US stocks, so at times it's returns can look a little out of step, compared to peers. Tillinghast uses Fidelity's analysts, but the true appeal here is Tillinghast himself, whose thoughtful, analytical insights, experience, and long-term time horizon really provide an edge. The fund has one of the industry's best long-term records, including on a risk-adjusted basis and fees are also very reasonable. It's a fund worth sticking with.
Alec Lucas: American Funds American Mutual is a great option for investors who want to maintain equity exposure but are worried about conserving principal. The fund had been around since the 1950s. It takes a conservative orientation, it has six managers, supported by two investment teams. The managers have two criteria they have to follow; one is each of their portfolios has to meet an above-market dividend-yield target. The other is their picks have to be from an eligibility list of about 300 companies. The companies have an investment-grade credit rating, and can't derive a majority of their revenue from alcohol or tobacco. Other than that, the managers are free to invest in line with their own styles, and they can hold cash or bonds as they see fit. This approach has led the fund to have very good long-term returns and to tend to do better than the market in downturns. It did better in the early 2000s bear market, the financial crisis, and more recently in the 2015-16 correction. Fees for active management are very competitive. It is a great long-term holding.
Greg Carlson: Artisan Mid Cap Value is a fund that we have a lot of confidence in. It earns a Morningstar Analyst Rating of Silver. The fund is headed up by very experienced managers; two of the three have been on the fund for more than 15 years. It also has a distinctive approach. The managers look for companies selling relatively cheaply, however they also want firms that have relatively little debt on their balance sheet. As a result, the fund tends to hold up well in downturns, and it has a strong record overall. The managers have also done a very good job of capacity management. It was closed to new investors for a very long time, finally re-opening late in 2016. We think it's a solid long-term holding.