What Is a Value Fund?
Let me explain what a value fund is: it's an investment that targets stocks priced below their true worth, determined by fundamental factors. You should know that value investing stands in contrast to growth investing, which chases after up-and-coming companies with strong growth potential.
Key Takeaways
Understand that a value fund pools money to buy shares undervalued via fundamental analysis. The core idea is that when the market catches on to these stocks' real value, prices rise, and you as an investor benefit from that uptick. Often, these value stocks belong to solid, established firms that pay dividends. And remember, Warren Buffett, one of the top investors globally, follows this value approach.
How a Value Fund Works
Value funds tie closely to strategies from Benjamin Graham and Warren Buffett. As a manager, I would select stocks for these funds based on traits that show their intrinsic value. You use value funds for long-term holdings that can grow steadily, so this involves thorough research and waiting it out.
Most big fund families have value options, often split by market cap—like small-, mid-, or large-cap value funds, giving you choices based on size.
The basis of value investing is that markets aren't always efficient, so some companies trade below their worth for various reasons. Skilled managers spot these gaps, and in theory, when the market fixes them, you see price gains. Plus, value stocks usually link to dividends from mature companies with steady payout plans.
Tip
Consider a blend fund if you want variety—it's an equity mutual fund mixing value and growth stocks, providing diversification in one portfolio.
Examples of Value Funds
Here are four straightforward examples from the market, including mutual funds and ETFs.
Specific Value Fund Examples
- The Vanguard Equity-Income Fund Investor Shares (VEIPX): This one targets large-cap companies with above-average dividends, ideal if you're after higher yields and plan to invest long-term.
- The ClearBridge Large Cap Value Fund (SAIFX): An actively managed fund aiming for capital growth and income via value strategies, with multiple share classes and quarterly dividends.
- The Invesco S&P 500 Enhanced Value ETF (SPVU): This ETF follows the S&P 500 Enhanced Value Index, putting at least 90% of assets into high-value-score stocks that are undervalued fundamentally.
- The iShares Edge MSCI USA Value Factor ETF (VLUE): An index fund tracking the MSCI USA Enhanced Value Index, focusing on large- and mid-cap U.S. stocks with value traits at low valuations.
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