The best value funds combine solid performance with low cost.
When the stock market becomes volatile, some investors seek out growth while others look for value. Investing in value funds could be a strategic play in the current recessionary environment if you’re choosing the right ones. “Many value plays by pre-pandemic standards have been hammered by widespread lockdowns and rapid changes in consumer behavior,” says Brian Martucci, finance editor at the Money Crashers website. “However, many stocks normally trading at low valuations and thus considered to be value plays are now regarded as market-beating investments, at least in the short to medium term.” If you’re looking for the best value fund or funds to invest in for a recession, here are seven options to consider.
Vanguard Value Index Fund (ticker: VVIAX)
If you’re looking for value mutual funds that include mature, value-oriented companies like Johnson & Johnson (JNJ), Intel Corp. (INTC) and UnitedHealth Group (UNH), then the Vanguard Value Index Fund is an obvious pick. Some of this value fund’s best features include its super-low expense ratio of 0.05% and its 100% exposure to U.S. companies, which Martucci says could position it well amid ongoing federal efforts to stimulate the economy. As an index fund, VVIAX tracks the performance of the CRSP U.S. Large Cap Value Index. This fund has a trailing 10-year return of 11.22% and a relatively low holdings turnover ratio of 12%, which may appeal to investors with a buy-and-hold approach.
DFA U.S. Large Cap Value Portfolio (DFLVX)
Recessions often trigger a flight to value investments, through which investors lean toward established companies that carry low risk. DFLVX is one of the best value mutual funds for increasing your exposure to large-cap U.S. equities, with holdings that include Pfizer (PFE), AT&T (T) and Comcast Corp. (CMCSA). “These kinds of companies and, in return, this kind of fund, will likely continue to earn and return dividends to shareholders,” says Brent Dickerson, owner and financial advisor at Over Coffee Financial in Cleveland. “During a recession, this fund may not be as affected as other funds not securely in the value sector.” DFLVX posted a 10-year trailing return of 10.7% while offering a low expense ratio of 0.26%.
DFA U.S. Targeted Value Portfolio (DFFVX)
Investing in the DFA U.S. Targeted Value Portfolio is something to consider if you’re interested in long-term capital appreciation through exposure to small- and mid-cap companies. This fund features a diverse mix that includes Owens Corning (OC), Reliance Steel & Aluminum Co. (RS) and Knight-Swift Transportation Holdings (KNX). Certainly, those aren’t as glamorous as some of the higher-priced tech stocks that have dominated the market in recent years. But DFFVX’s holdings include attractively valued, leading providers of essential goods and services that are certain to be in demand regardless of when the recovery from the current recession happens, says Andrei Stetsenko, co-managing partner of New York-based Farley Capital. This value fund is also cost-friendly, with a low expense ratio of 0.36%.
Avantis U.S. Equity ETF (AVUS)
Part of investing in value funds in a recession means getting the timing right. “It’s an attractive time to own value stocks because they are one segment of the market that has become cheaper over the last decade,” says Sammy Azzouz, president of Boston-based Heritage Financial Services. As a recession gives way to recovery, value stocks tend to pick up steam. The Avantis U.S. Equity ETF is one of the best value funds to consider for exposure to some of the market’s biggest players, including Facebook (FB), Microsoft Corp. (MSFT) and Amazon.com (AMZN). This is a newer exchange-traded fund, so it lacks a lengthy track record — but it does offer a path to long-term capital appreciation with a low expense ratio of 0.15%.
SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
SPTM is one of the best blended value mutual funds to buy for gaining exposure to a broad stock market base. This value fund seeks to mimic the total return performance of the S&P Composite 1500 Index, which includes small-, mid- and large-cap U.S. companies. The SPDR Portfolio S&P 1500 Composite Stock Market ETF is a particularly good choice if you’re a cost-conscious value investor. “The average retiree’s second-largest expense in retirement, after taxes, are investment fees,” says Tony Hellenbrand, partner and retirement planner at Safeguard Wealth Management. SPTM has an ultra-low expense ratio of 0.03%, beating out some of the top Vanguard value funds. It’s also a solid performer as well, boasting a 13.59% 10-year trailing return.
Northern Large Cap Core Fund (NOLCX)
The Northern Large Cap Core Fund is another large-cap value fund offering investors might consider given the unique circumstances that have prompted the current recession. Sergey Savastiouk, CEO of Silicon Valley-based Tickeron, says NOLCX is one of a handful of value mutual funds that has had the best recovery from the pandemic market drop, with a total one-year performance of 4.01%. The fund’s 10-year trailing return is 12.74%. Key holdings include familiar names such as Apple (AAPL), Alphabet (GOOGL) and Cisco Systems (CSCO) — though it’s worth pointing out that NOLCX has a higher turnover ratio of 37.9%. However, it could still be a good value mutual fund choice overall if you favor a buy-and-hold philosophy.
Vanguard Dividend Growth Fund (VDIGX)
The Vanguard Dividend Growth Fund is another large blend value mutual fund that emphasizes both growth and value through capital appreciation. This fund includes top companies such as Coca-Cola Co. (K), McDonald’s Corp. (MCD) and TJX Cos. (TJX) — all of which have experienced unique challenges in navigating the current recession. Like other Vanguard funds, VDIGX is low-cost with an expense ratio 0.27%, and it has a low turnover ratio of 17%. In terms of performance, this blended value fund has a 10-year trailing return of 13.15%, making it one of the best Vanguard mutual funds and one of the best value funds overall of the options included here. It’s also worth pointing out the 1.85% yield that VDIGX offers.
Seven of the best value funds to buy for a recession:
— Vanguard Value Index Fund (VVIAX)
— DFA U.S. Large Cap Value Portfolio (DFLVX)
— DFA U.S. Targeted Value Portfolio (DFFVX)
— Avantis U.S. Equity ETF (AVUS)
— SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
— Northern Large Cap Core Fund (NOLCX)
— Vanguard Dividend Growth Fund (VDIGX)
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