As we enter the second year of a market rally, many investors are now gravitating toward the stability of large-cap value stocks in a flight to safety, as questions arise about the strength of the economic recovery in the United States and the Federal Reserve commits to raising rates.
Indeed, large-cap value stocks have outperformed their growth rivals over the past five years after the waning days of the high-tech burst. For the year ended July 30, the Standard & Poor's 500/BARRA Value Index returned 17.4%, soundly beating the broader Standard & Poor's 500 Stock Index, which returned 13.2%. The Value Index also topped the 500 for the three- and five-year periods, though not quite as convincingly.
The top-performing large-cap value portfolio for the three- and five-year periods, the $1 billion John Hancock Classic Value Fund (PZFVX), finds stocks the managers believe to be undervalued based on estimated future earnings and cash flow. Lead manager Richard Pzena also evaluates the value of a company's entire business relative to its price.
Formerly called the Pzena Focused Value Fund, the portfolio is heavily concentrated in the manager's favorite picks--the top 10 holdings represented 40% of total assets as of the end of July. Not surprisingly for a value fund, financials are in abundance: Insurance stocks alone account for 22% of assets.
Another long-term top performer, the $93 million TCW Galileo Dividend Focused Fund (TGIGX), uses a fundamental investment approach with an emphasis on dividend yield. Managed by Diane Jaffee, the fund gained 8.8% annualized for the three-year period, good for third best, and 10.2% for the five-year period, putting it in fifth place.
TCW Galileo Dividend Focused has more than half its assets in financials, consumer discretionary, and industrial stocks. The fund has only 43 positions, and a 29% weighting in the top 10.--Palash R. Ghosh