A mutual fund that employs a value approach to investing is referred to as a value fund. A manager of a value fund will select stocks he/she believes are fundamentally undervalued for inclusion in the portfolio. Value fund managers typically screen for companies trading at a P/E discount to the overall market or companies in a turnaround mode. A value fund is more focused on safety than a growth fund so most value fund managers look for mature companies with ample cash flows that have an established track record of paying dividends. Value fund managers generally outperform growth fund managers during periods when the economy is weak. Because a value fund derives a portion of its returns from dividends and is not dependent exclusively on share price gains, a value fund tends to be less volatile than a growth fund.
A value fund is a mutual fund that buys stocks of undervalued companies in hopes they will soon recover.
Methods of valuing stocks vary widely, but value investors prefer to buy companies whose stock sells for close to book value or liquidation value. A low price-earnings ratio is usually favored.
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This glossary post was last updated: 29th March 2024.
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