Large-cap equities are poised to outperform in 2011, and this year is a good one to invest in value funds, according to a Standard & Poor’s Equity Strategy Group “Trends & Ideas” report released Tuesday.
“U.S. small-cap stocks have outperformed large-cap equities in 10 of the past 11 years, including significant outperformance in 2010,” the group wrote. “Why do we think 2011 will be different? According to S&P's Chief Investment Strategist Sam Stovall, large caps typically outperform as bull markets mature, and we are about to enter the third year of this current bull market.”
Specifically, the group picked the three best large-cap value funds from among nearly 500 mutual funds, screening for S&P five-star ranked funds open to new investors in the Large Cap Value peer group, with no sales loads and low expense ratios and turnover rates:
Becker Value Equity Fund (BVEFX)
BVEFX outperformed its Large Cap Value peers over the past three-year and five-year periods ended Jan. 31, with a nearly 400 basis point outperformance over the three-year period, at 1.5% versus -2.2%. “The fund keeps expenses relatively low, with a net expense ratio of 1.0% versus 1.3% for peers, and generates a higher Sharpe Ratio,” the S&P group wrote. S&P equity analysts have Strong Buy recommendations on the fund’s top-10 holdings Coca-Cola and Johnson Controls. In addition, Murphy Oil and Schlumberger are top-10 holdings in the Energy sector.
Invesco Large Cap Relative Value Fund; Class Y (MSIVX)
MSIVX is a relatively small fund, with $68 million in assets under management, but it is set to merge with larger five-star rated Invesco Van Kampen Growth & Income Fund (ACGMX) in mid-2011, says the S&P group. “The fund has a solid track record, besting peers over the past 3-year, 5-year and 10-year periods. MSIVX keeps expenses low, with a 0.7% expense ratio, and allocated 14% of its assets to the Energy sector as of Nov. 30.” The analysts have Buy recommendations on half of the fund's top-10 holdings, including JP Morgan Chase, General Electric, Viacom, American Electric Power and Anadarko Petroleum.
Wasatch Large Cap Value Fund (FMIEX)
“For investors seeking even greater allocation to the Energy sector, FMIEX looks to us like a solid option, with its top four holdings in that sector and a 19.3% overall weighting to Energy,” the S&P group wrote. The analysts have a Strong Buy recommendation on Exxon Mobil and a Buy recommendation on Ensco PLC. In addition, they have a Strong Buy recommendation on top-10 holding Travelers Companies. FMIEX has an above-average record, outperforming its peers on a 1-year and 3-year basis.
Read about S&P’s picks for the lowest-cost, highest-return S&P 500 index funds at AdvisorOne.com.