Here are some new investments that those saving for or living in retirement might consider for their...
Value Funds for the Less Risky Bucket
02/03/2016 9:00 am EST
Value funds have been hit across the board, but those with meaningful energy and basic-materials stakes have been hit hardest. That’s a little scary as it is tough to call the bottom, especially with growth in China slowing, asserts Russel Kinnel, editor of Morningstar FundInvestor.
So, in the less risky bucket I’ll add value funds that don’t have much in those areas.
Artisan Global Value (ARTGX)
This recently reopened fund is one of the better ways to take advantage of bargains in the value sphere. Managers David Samra and Dan O’Keefe look for turnarounds with healthy balance sheets.
They seek companies with high returns on capital that are trading at discounts to their private market value. Today, they have only 3% in energy but a huge 40% financials weighting.
That’s a bold move, but they did a great job of avoiding banks in 2008 because they were wary of leverage, among other things.
The fund had its first year of underperformance in 2015 and that led to some outflows, so they reopened the fund in the fall.
Dodge & Cox Global Stock (DODWX)
Dodge & Cox Global Stock is a more conventional take on value investing. Its managers are patient value investors buying stocks when they suffer from bouts of unpopularity and waiting for them to rebound.
The fund’s 7% energy weighting and 2% materials weighting are about in line with the category and benchmark, as are most of its sector weightings.
It is a little more adventurous in emerging markets where it owns a 14% weighting versus 5% for the peer group. That has held it back lately. On the plus side, it has some of the lowest fees in the category.
Sound Shore (SSHFX)
This fund shows that focused portfolios don’t have to be high-risk. Management only owns 40 stocks, but it limits stock weightings to no more than 3.5%.
It also avoids deep-value stocks, which tend to be higher risk/higher reward. Rather, it favors stocks that have shown some signs of recovery and have strong competitive positions.
The end result is a fairly consistent portfolio and performance. Its desire for companies with competitive positions has led it away from materials and energy and into financials, tech, and healthcare.
Personnel also have been consistent. Harry Burn III and Gibbs Kane Jr. have been running the fund since 1985 and co-manager John DeGulis was named manager in 2003 but has been with the firm since 1996.
Fidelity Low-Priced Stock (FLPSX)
Joel Tillinghast just keeps on producing great results. It’s a huge wide-ranging fund, but one that has beaten its benchmark over the long haul with less risk than the benchmark.
Tillinghast looks for modest valuations at firms with competitive advantages. He invests quite a bit overseas, too. The fund’s 39% foreign equity weighting puts it a hair below our cutoff for world stock.
The fund’s energy and materials weightings are below the benchmark and peer group, but Tillinghast’s biggest sector bet is on consumer cyclicals, where he has 28% of equities.
American Century Value (TWVLX)
Phil Davidson and team have a 19% energy weighting and a minuscule materials weighting, but I’m including it in the lower-risk bin unlike the other value funds with big energy and materials bets.
Davidson looks for companies with defensible franchises whose shares are in the cheapest third of the S&P 500. His fondness for yield also leads him to some of the oil majors.
Exxon Mobil (XOM), Chevron (CVX), and Occidental Petroleum (OXY) are among its top holdings. Because those companies operate across the oil-supply chain, they tend to be less vulnerable to declining oil prices.
In fact, the fund has held up reasonably well and remains an appealing core value fund.
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