Originally created 02/25/02

Value funds finally get attention

NEW YORK -- Value funds, overlooked and even disdained during the great high-tech boom, are finally having their day.

So far this year, value funds, which concentrate on lower-priced companies with stable returns, are outpacing growth funds, those typically heavy in tech stocks or newer industries. Analysts say that represents a big opportunity for investors.

"If you are considering just growth (funds) or value, now would be the smart time to continue with a heavier weight in value," said Jim Shirley, research analyst for Lipper Inc., a New York-based fund research firm.

While most of Lipper's 42 fund categories are showing negative returns for 2002, value funds' slippage has been less severe than most.

For example, large-capitalization value funds have a negative return of 2.7 percent for the year, while large-cap growth funds have a negative return of 3.8 percent, according to Lipper. Capitalization refers to the size of a company's book value, or what it is worth in the stock market.

Mid-cap value funds have a negative return of 0.5 percent, a much better showing than mid-cap growth funds' 5.8 percent negative return.

And small-cap value funds have a negative return of 0.5 percent; small-cap growth is doing far worse, with a negative return of 6.7 percent.

While the numbers are all negative, analysts believe that when the market does recover, value funds will continue to show the best gains.

Many investors have overlooked value funds because their excitement quotient has been far less than that of growth funds in recent years.

Value funds have had steady, moderate gains, returning an average 9.1 percent annually over the past five years. Growth funds, meanwhile, have been more volatile, soaring and then plunging along with tech stocks, especially Internet issues. They've had average annual returns of 8.0 percent over the past five years.

"Considering the volatility in the markets that we are expecting for 2002, value stands a good chance of leading throughout this year," Shirley said.

Many investors already have adapted, pouring money into value funds and pulling out of growth funds.

"More people today are leaning toward value. In the height of the bull market, no one was concerned about earnings. They were praying and hoping they would be part of a new economy," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif.

"As we got into the decline, people started looking at the balance sheets more closely, to see if there were actual earnings there."

Part of the appeal of value funds is that their companies are often easier to understand than growth firms, Lydon said. Investors can better visualize how cars or sweaters are sold than how Internet companies make money - and they're no longer swayed by the kinds of lofty promises the dot-coms once made.

"Investors are looking for good value, consistent returns, more simplified business models with more simplified business sheets," Lydon said.

Another positive factor for value funds has been consumer spending, Shirley said. While growth funds focus more on tech, value funds typically have a heavier concentration of consumer-oriented stocks. And, consumer spending, for such items as cars and appliances, has held up much better compared with corporate spending on technology.

But analysts and financial advisers say it's not an either-or situation. Given the market's uncertainty, there's a greater need for diversification, to have money invested in both kinds of funds.

"Diversification is what we are always preaching to investors," Shirley said.

Lydon agreed, saying: "There are some great opportunities both on the growth side and the value side."


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