Sunday, April 26, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Of mutual funds: Growth or value? Fund investors’ choice is clear

By
From page B8 | June 08, 2014 |

Stan Choe

NEW YORK — The tortoise is running laps around the hare when it comes to investing in mutual funds.

Investors are embracing stocks, pushing the Standard & Poor’s 500 further into record territory. But investors are focusing on mutual funds that buy cheap or underappreciated stocks, ones called value funds. Funds that specialize in more glamorous, high-growth stocks, meanwhile, are still getting the snub.

A net $7.9 billion flowed into domestic value stock funds through April of this year. Over the same time, investors withdrew $8.2 billion from their growth counterparts, according to Morningstar. The bias toward value stock funds began last year. As recently as 2012, investors were pulling out of both growth and value funds, still scarred from the financial crisis.

To be sure, value and growth stock funds aren’t the only options available. Broad index funds are even more popular, with many investors choosing to own the entire market. But when investors have opted for actively managed funds, they’ve clearly gone for value over growth.

Stocks don’t declare themselves in one camp or the other, instead they’re categorized based on broad guidelines. Value stocks tend to have slower revenue growth than companies like Amazon.com or Netflix, but they also tend to pay dividends and have lower stock prices relative to their earnings. Many also have strong balance sheets. Think of companies that cater to basic needs, like toothbrushes, insurance or electricity.

“Our style of investing tends to do better in an environment when the stock market is going slightly up, sideways or down,” says Tom Kolefas, manager of the TIAA-CREF Mid-Cap Value fund (TCMVX). It tends to lag growth stocks when there’s “a jack-rabbit market that’s very powerful, like last year.”

Last year, growth stocks in the Russell 3000 index surged 34.2 percent, including dividends. That topped the 32.7 percent return of value stocks in the index, and it was the fourth time in five years that growth stocks beat value.

Part of the allure was the short supply of companies delivering strong growth in a tepid global recovery. The world’s economy grew 3 percent last year, its weakest performance since the recession, according to the International Monetary Fund. That made it tough for most companies to boost their sales significantly.

Amazon.com’s revenue rose 22 percent last year, and its stock surged 59 percent. But in March, the Internet retailer’s stock fell with other growth stocks as worries mounted that their momentum was slowing.

The shift in performance can be seen in mutual-fund returns: The average large-cap value stock fund has returned 5 percent this year, including dividends. That’s more than double the 2.4 percent return of large-cap growth stock funds. The disparity is even sharper for smaller stocks: Mid-cap value stock funds have returned 5.1 percent versus 0.5 percent for mid-cap growth funds.

Some of the factors that managers say are driving interest in value stocks include:

Concerns are higher about a more expensive stock market

Last year’s market surge means nearly all stocks are more expensive relative to their earnings than before. The Standard & Poor’s 500 index trades at 17 times its earnings per share over the last 12 months, for example. That’s up from 13 at the end of 2012 and from 8 in early 2009.

Many managers say the market doesn’t yet look frighteningly expensive, but investors are more aware of price-earnings ratios. Value stocks in the Russell 3000 index traded at 17 times their earnings at the end of April. Growth stocks were at 21.

Value stocks are home to dividend payers

Value stocks typically steer more of their profits to paying dividends. In contrast, growth stocks often find it best to plow their cash back into the business: Spending money to develop new products or expand their warehouses helps to generate even more growth.

Value stocks in the Russell 3000 had an average dividend yield of 2.3 percent at the end of April, versus 1.6 percent for growth stocks.

Demand for dividend stocks has increased as investors look for alternatives to bonds, which offer relatively low yields. This should be a long-lasting trend, says John Manley, chief equity strategist at Wells Fargo Funds Management. With the Baby Boom generation reaching retirement age, a bigger percentage of the population will be looking for investment income.

One challenge for value investors is that the stock market’s surge has made cheap stocks tougher to find. But managers say it’s not impossible.

When the market looks too risky, John Osterweis says he sells stocks and bides his time in cash. That’s what he did with his $1.2 billion Osterweis fund (OSTFX) in 2008, when half the fund at one point was in cash.

But today, cash makes up just 6 percent of the fund. Osterweis looks for cheap value stocks that he believes will morph into growth stocks, and he says he’s still finding opportunities.

 

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Children enjoy day of fishing at Fairfield pond

By Susan Hiland | From Page: A1 | Gallery

 
Solano cities celebrate Earth Day

By Susan Hiland | From Page: A1 | Gallery

Hard-fought battle ends in victory

By Amy Maginnis-Honey | From Page: C1 | Gallery

 
Those addictive, terrible, wonderful smartphones

By Brad Stanhope | From Page: A2

 
Expo shows Kroc Center fun for whole Framily

By Bill Hicks | From Page: A3 | Gallery

Police, faith groups look to change troubled neighborhoods

By Bill Hicks | From Page: A3 | Gallery

 
Edibles in your landscape

By Daily Republic | From Page: C4

CHP offers free class for senior drivers

By Kevin W. Green | From Page: A4

 
Supervisors consider changes in various county fees

By Kevin W. Green | From Page: A4

Suisun police execute tobacco sting

By Bill Hicks | From Page: A4

 
Covered California offers Solano enrollment events

By Kevin W. Green | From Page: A5

Patrons raise a glass to toast a good cause

By Bill Hicks | From Page: A5 | Gallery

 
Walk MS hits stride along Suisun waterfront

By Susan Hiland | From Page: A5 | Gallery

Weather for Sunday, April 26, 2015

By Daily Republic staff | From Page: B6

 
Be wary of next ‘big’ thing

By Bud Stevenson | From Page: B7

Pay close attention to investment costs

By Mark Sievers | From Page: B7

 
.

US / World

With legalization, lawyers turn to business of pot

By The Associated Press | From Page: A1

 
Spring storm delivers late rain, snow to Northern California

By The Associated Press | From Page: A5

Remains of dismembered newborn found in South Los Angeles

By The Associated Press | From Page: A5

 
Starbucks stores reopen Saturday after computer glitch

By The Associated Press | From Page: A6

Nearly 17 million watch Jenner interview

By The Associated Press | From Page: A6

 
‘Operation Babylift’ kids, soldiers reunite 40 years later

By The Associated Press | From Page: A6

Aden hit by coalition airstrikes amid fierce street battles

By The Associated Press | From Page: A7

 
Mother in custody dispute freed after 8 years behind bars

By The Associated Press | From Page: A7

A dozen arrested as Freddie Gray protests turn violent

By The Associated Press | From Page: A7

 
Italy marks 70th anniversary of anti-Nazi uprising

By The Associated Press | From Page: A7

European authorities stop illegal horse meat network

By The Associated Press | From Page: A7

 
Italian navy rescues 274 from migrant ship off Libyan coast

By The Associated Press | From Page: A7

Army shutting down wounded warrior transition care units

By The Associated Press | From Page: B10

 
Warrior pose: Yoga catching on as therapy for veterans’ PTSD

By The Washington Post | From Page: B10

Toll climbs after powerful quake hits Nepal: Things to Know

By The Associated Press | From Page: A11

 
.

Opinion

How can we give them more?

By Brian Thiemer | From Page: A8, 1 Comment

 
Primary challenge could force Harris’ hand

By Dan Walters | From Page: A8

Sound off for April 26, 2015

By Daily Republic | From Page: A8

 
Corruption tarnishes values of our ancestors

By Letter to the Editor | From Page: A8

 
Obama sides with enemy

By Letter to the Editor | From Page: A8

Who’s asleep at the switch?

By Letter to the Editor | From Page: A8

 
.

Living

Today in history: Sunday, April 26

By The Associated Press | From Page: A2

 
Brides show short wedding gowns more of the love

By The Associated Press | From Page: C2

Community Calendar: April 26, 2015

By Susan Hiland | From Page: A2

 
Vatican goes on offensive to defend US-Spanish saint

By The Associated Press | From Page: C3

 
You get what you need with Jesus

By Noel Reese | From Page: C3

 
How can I trust my husband after he texted a younger woman behind my back?

By Kathy Mitchell and Marcy Sugar | From Page: C4

Horoscope: April 26, 2015

By Holiday Mathis | From Page: C4

 
Veterinarians are too expensive, and it puts pets at risk

By The Washington Post | From Page: C5

Old standby body-weight training still has moves

By The Washington Post | From Page: C7

 
Milan spiffs up for Expo 2015

By The Associated Press | From Page: C7

.

Entertainment

PUBLISHERS WEEKLY BEST-SELLERS

By The Associated Press | From Page: A10

 
More copies of Laura Ingalls Wilder memoir being printed

By The Associated Press | From Page: A10

Amber Tamblyn writes book of poetry about dead actresses

By The Associated Press | From Page: A10 | Gallery

 
TVGrid

By Daily Republic Syndicated Content | From Page: B11

.

Sports

Giants beat Rockies 5-4 in 11 innings

By The Associated Press | From Page: B1

 
Warriors complete sweep with 109-98 win over Pelicans

By The Associated Press | From Page: B1 | Gallery

Athletics drop 3rd straight game, 9-3 to Astros

By The Associated Press | From Page: B1 | Gallery

 
Rain postpones NASCAR race at Richmond until Sunday

By The Associated Press | From Page: B1 | Gallery

 
Bulldogs get 10-0 baseball win over Panthers

By Daily Republic staff | From Page: B2

Canadian teen Henderson has 1-shot lead in LPGA Tour event

By The Associated Press | From Page: B2 | Gallery

 
Klitschko outpoints Jennings to defend heavyweight titles

By The Associated Press | From Page: B2

Michael Schumacher’s son makes strong Formula 4 debut

By The Associated Press | From Page: B2

 
US routs Canada 7-2 in semifinal at under-18 hockey worlds

By The Associated Press | From Page: B2

Watford back in Premier League after 8-year absence

By The Associated Press | From Page: B2

 
Several Kentucky Derby hopefuls get workouts in before rain

By The Associated Press | From Page: B2

Levy falters at Volvo China Open; 4 tied for lead

By The Associated Press | From Page: B2

 
Former Expos executive Jim Fanning dies at 87

By The Associated Press | From Page: B2

Sandy Lyle, Ian Woosnam team to lead Legends of Golf

By The Associated Press | From Page: B2

 
Compton, Day top leaderboard in rain-plagued Zurich Classic

By The Associated Press | From Page: B2

Suzuki breaks Oh’s record for runs by a Japanese player

By The Associated Press | From Page: B2

 
A’s place Ben Zobrist on disabled list with knee injury

By The Associated Press | From Page: B3

7 players from Royals, White Sox punished by MLB for brawl

By The Associated Press | From Page: B3 | Gallery

 
Hometown report: Bicycle racing, youth track

By Daily Republic staff | From Page: B4

Bowling report for April 26, 2015

By Daily Republic staff | From Page: B4

 
Bayless’ layup at buzzer gives Bucks 92-90 win over Bulls

By The Associated Press | From Page: B4 | Gallery

Nets beat Hawks 91-83, pull within 2-1 in series

By The Associated Press | From Page: B4 | Gallery

 
Grizzlies hold off a late Trail Blazers rally to go up 3-0

By The Associated Press | From Page: B4

Sports on TV for Sunday, April 26, 2015

By Paul Farmer | From Page: B5

 
This date in sports history for April 26

By The Associated Press | From Page: B5

.

Business

Veggies take center plate as healthy fast food chains expand

By The Associated Press | From Page: B7 | Gallery

 
What’s in a hotel name? Guests try to decipher the mystery

By The Associated Press | From Page: B7 | Gallery

Is ice cream safe? Federal health officials say yes

By The Associated Press | From Page: B8

 
 
Don’t panic, college seniors: Jobs for grads likely to grow

By The Associated Press | From Page: B9 | Gallery

.

Obituaries

Elizabeth Cepeda

By Nancy Green | From Page: A4, 1 Comment

 
Janis Ruth (Sefzik) Skinner

By Nancy Green | From Page: A4

Nicole Herdia Spann

By Susan Hiland | From Page: A4

 
Reginald Morris Davis

By Susan Hiland | From Page: A4

Kirk Noonan

By Nancy Green | From Page: A4

 
Sandra King

By Nancy Green | From Page: A4

.

Comics