S&P: Value Funds Coming to the Fore

March 4, 2004 (PLANSPONSOR.com) - Even though investors typically favor hard-charging growth funds at this point in a market recovery, more slow and steady value funds are apparently still taking the day.

Standard & Poor’s said in a news release that investors have been moving increasingly into value oriented investments since February, possibly signaling the market’s greater concern about valuations.  In fact, Standard & Poor’s determined that value funds have led so far this year across all market capitalization categories.

“While returns were solid across domestic equity fund styles, value funds’ outperformance is somewhat atypical for the second year of a bull market, when growth investing generally leads,” S&P analysts wrote in a report.

According to Sam Stovall, Standard & Poor’s Chief Investment Strategist, February was marked by a rotation into deeper cyclical issues, particularly materials and energy, as well as consumer staples with the focus on energy and materials as a hedge against inflation. 

Unusual for the second year of a bull market, investors are continuing to favor smaller-cap issues, with small-cap funds heading the investing parade so far this year, and mid-cap funds taking the lead in February. The significant, according to S&P: “Investors may be shifting to less aggressive value issues, but they’re still looking for growth by favoring smaller-cap issues.”

According to S&P data, for example, small-cap value funds ended February with a 1.95% gain, compared to a 1.31% advance for all domestic equity funds and a 1.39% improvement for the S&P 500. Year to date, small-cap value funds had a 4.96% performance, compared to 3.66% for all domestic equity funds and 3.25% for the S&P 500.