Some fund groups deserve another look.

Which funds should investors buy—or steer clear of—this year?

Morningstar recently released its list of three of this year’s “unloved categories” that investors should actually consider buying, as well as three categories to avoid, based on flows for open-end and exchange-traded funds.

The fund research firm notes that those flows and Morningstar’s research suggest investors should consider funds in the large-cap growth, mid-cap growth and European stock categories.

The categories to avoid in 2017 include large blend, foreign-large blend, and diversified emerging markets.

The unloved categories have beaten the loved by more than five percentage points annualized from 1993 through the end of November 2016, according to the Chicago-based research firm. 

Dan Culloton, an associate director covering equity strategies on Morningstar’s manager research team who authored the report, notes that the “Buy the Unloved” research “can be a good guide to contrarian ideas, but the strategy is best reserved for a small portion of your portfolio.”

“Use it on the periphery of your long-term asset-allocation plan. It can help you exercise the urge to ‘do something’ when the market makes big moves and remind you of the power of rebalancing away from the most-popular categories and toward the unpopular ones,” Culloton explained.

Since investors often chase performance, funds in these unloved categories, Morningstar says, may be undervalued and poised for better returns in the future:

  • In the large-growth category, Primecap Management’s experienced managers and contrarian approach has been successful in funds such as Vanguard Primecap, which has a Morningstar Analyst Rating of Gold, but is closed to new investors, and Primecap Odyssey Growth, which also has an Analyst Rating of Gold, and can still be had for 65 basis points.
  • In 2016, European equity funds were also among the loved categories in the first half of the year; once Brexit spooked investors, the event spurred opportunities for veteran managers with deep resources, such as Dean Tenerelli of Bronze-rated T. Rowe Price European Stock.
  • In the mid-cap growth category, Silver-rated Akre Focus is priced at a high fee level of 1.34%, but fund manager Chuck Akre has a solid record of investing in stocks that trade at discounts to his estimate of value. 

— Check out Top 10 New ETFs of 2016 on ThinkAdvisor.