Value Fund

A value fund is a fund that follows a value investing strategy and seeks to invest in stocks that are deemed to be undervalued in price based on fundamental characteristics. Value investing is often compared with growth investing which focuses on emerging companies with high growth prospects.

Value funds and value investing are often synonymous with strategies developed by notable value investors Benjamin Graham and Warren Buffett. Value managers choose stocks for value funds based on the fundamental characteristics associated with a stock’s intrinsic value. Value funds are typically used as long-term investing allocations that have potential to grow steadily over time. Thus, value fund investing is often associated with investment due diligence and patience. (See also What is Value Investing?)

Nearly every large fund family offers a value fund. Value funds are often broken down by varying components with one of the most popular categories for variation being market capitalization. For example, a fund family may include small-, mid- and large-cap value funds for investors to choose from.

The premise of value investing is that the market has some inherent inefficiencies causing specific companies to trade at levels below what they are actually worth for various reason. Value fund managers are skilled in identifying these market inefficiencies. In theory, once the market corrects these inefficiencies, the value investor will gain from an increase in the share price. Often value stocks are also associated with dividend payments since they are usually well-established companies with committed dividend distribution programs. 

Below are examples of some of the investment market’s top value mutual funds and exchange-traded funds.

Vanguard Value Index Fund

The Vanguard Value Index Fund uses an index replication strategy. It seeks to match the holdings and return of the CRSP U.S. Large Cap Value Index. The Fund’s holdings are focused on large-cap investments.

ClearBridge Large Cap Value Fund

The ClearBridge Large Cap Value Fund is an actively managed value fund that seeks capital appreciation and income through a value focused investing strategy. The Fund offers multiple share classes. It also pays a consistent quarterly dividend.

iShares MSCI EAFE Value ETF (EFV)

The iShares MSCI EAFE Value ETF is one of the largest and best performing value ETFs in 2017. As of November 28, 2017, it had assets of $5.97 billion and a year-to-date return of 19.55%. The ETF seeks to track the holdings and return of the MSCI EAFE which is a developed market index. The Fund excludes investments in companies from the U.S. and Canada. The Fund is focused on investments with leading value characteristics.

Guggenheim S&P 400 MidCap Pure Value (RFV)

The Guggenheim S&P 400 MidCap Pure Value ETF is an index fund. It seeks to replicate the holdings and return of the S&P MidCap 400 Pure Value Index. The Index includes stocks from the S&P 400 MidCap universe. It focuses on three value characteristics: book value to price ratio, earnings to price ratio and sales to price ratio.