Most managed mutual funds fall into one of two philosophical camps: value or growth. A value stock is one that is undervalued. In other words, you can get it cheap. Think of value mutual fund managers as the bargain shoppers of the stock market.
A value stock may be undervalued because it’s in an industry that is struggling. It may be undervalued because it’s not in one of the “hot” industries. Whatever the reason, the company is trading
at a price that may not reflect its actual value.
Value stocks are often mature companies that have stopped growing and that use their earnings to pay dividends. Thus value funds produce current income (from the dividend) as well as long-term growth (from capital appreciation once the stocks become popular again).
Some managers look for stocks selling below book value, while others looks for stocks with high dividends. It’s a risk, because depressed shares can get more depressed. For that reason, value managers tend to be long-term investors.
Experts say you should own both growth and value funds. Some managers buy both types of stocks in what are called blend or core funds. Why include value mutual funds in your portfolio? Over the years, they have done better than growth stocks--which are more popular and often cost more.
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