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Value is king among black-owned mutual funds.Last April, after three years of underperformance, value stocks began to outpace flashier growth stocks, as some investors grew less confident in the ability of growth companies to continue delivering higher earnings.
This change in the market boosted returns on value funds. Likewise, portfolios adhering to a value investment philosophy helped the 14 funds in the black enterprise Black Mutual Fund Index post an average total return of 7.97% through June 30. That’s close to the 8.98% average return posted by equity income funds, portfolios with a value orientation, for the same period, according to Lipper Inc., a mutual fund research firm in Summit, New Jersey. All general equity funds returned 11.04% through June 30, according to Lipper, while the Standard & Poor’s 500 stock index is up 11.95%.
Case in point: the Victory Lakefront large-cap value fund, with $2 million in assets. The fund led the Black Mutual Fund Index’s performance with a 16.53% total return through June 30, 7 percentage points above the average large-cap portfolio’s 9.6% return.
Nate Carter, CEO of Lakefront Capital in Cleveland and manager of the fund, says that in addition to holding stocks in core value sectors like utilities, capital goods and basic materials, he dips into "fallen angels" in such areas as pharmaceuticals and technology to boost returns. For example, Dallas-based technology firm Texas Instruments (NYSE: TXN), up 57% through June 30, helped contribute to the fund’s return. Carter bought the out-of-favor stock at an average cost of $55; it recently traded at $143. His top three holdings in his portfolio as of June 30: IBM (NYSE: IBM), 3.2%; Chase Manhattan (NYSE: CMB), 3.1%; and Kmart (NYSE: KM), 2.8%.
The Edgar Lomax Value fund also benefited from the shift toward value stocks and funds, says Randall Eley, CEO of the Edgar Lomax Co., in Springfield, Virginia. The portfolio had a 14.35% total return through June 30, beating the S&P 500’s 12.32% gain. Fifteen-month-old Liberty Freedom came in a close second, returning 13.66%.
Between the two funds, there is nearly $9 million in assets, and Eley holds the same stocks in each portfolio. His three largest holdings are Minnesota Mining & Manufacturing (NYSE: MMM), 4.9%; Goodyear (NYSE: GT), 4.7%; and J.P. Morgan (NYSE: JPM), 4.6%. Eley, who is the advisor for Lomax Value and sub-advisor for Liberty Freedom, attributes his performance to seeking out overlooked stocks in "stable, long-term economic sectors."
Meanwhile, John Rogers, fund manager of the Chicago-based Ariel Fund (Nasdaq: ARGFX), with $216 million in assets, has found the going rough this year. The fund, which concentrates primarily on small stocks, has returned a minute 1.7% through June 30, compared with 9.28% for the Russell 2000. Still, Rogers continues to find bargains in the smaller part of the stock universe. His top three holdings are Specialty Equipment (NYSE: SEC), 5.5%; Central Newspapers (NYSE: ECP), 5.2%; and Rouse (NYSE: RSE), 5%.
Like other bond funds, MDL Broad