"Of Mutual Interest"- Value Fund Investing
Tuesday, March 24, 2009SUSIE GHARIB: One benefit of a brutal market downturn is that it creates buying opportunities for bargain-hunting investors. Value fund managers say they're finding great opportunities these days in areas of the market many investors won't touch. Erika Miller has more on value fund investing in tonight's "Of Mutual Interest."
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Are you the type of shopper who buys a winter coat in springtime when it is drastically marked down? Chances are value investing will appeal to you. It's the strategy of buying stocks in out-of-favor companies trading at less than their true worth. Robert Fetch, portfolio manager of the Lord Abbett all value fund, says the stock market's steep correction has created great investment opportunities.
ROBERT FETCH, PORTFOLIO MANAGER, LORD ABBETT ALL VALUE FUND: If you contrast where we are today just versus last summer, the market has had a half price sale. You can buy just about any stock down 50 percent. Many of the best companies in America are being priced at levels where you don't have to pay a premium as you normally would.
MILLER: But as shrewd shoppers know, not everything on sale is a good deal. The same is true of stocks that get marked down. Jonathan Vyorst, portfolio manager of the Paradigm value fund, warns that in a bear market, it is more difficult to tell the junk from the gems.
JONATHAN VYORST, PORTFOLIO MANAGER, PARADIGM VALUE FUND: It's harder to separate out what are called value traps when everything is down, because there are some companies that are going to be hurt by this downturn and hurt by what's happened in the financial markets. That may not recover. So it does require more due diligence.
MILLER: Vyorst looks for companies that have low price to earnings, price to book and price to free cash flow ratios. He also wants to see a low debt load and strong market share. Value fund managers also want signs that the stock's discounted price is not the result of poor fundamentals.
FETCH: We evaluate the risk side of the investment equation first before we even look at the reward side. The strategy we employ is very much a win by not losing strategy. We need to preserve capital first, in order for it to be positioned to be rewarded.
MILLER: These days, some value fund managers are hoping to be rewarded for bets in the troubled financial sector. The Lord Abbett all value fund owns insurance broker Aon, Texas bank Cullen/Frost, as well as Missouri- based Commerce Bancshares. The Paradigm all value fund on the other hand, has significant holdings in insurer American Financial Group as well as Anworth mortgage, a REIT that invests in mortgage-backed securities. One thing most fund managers agree on is that value investing only makes sense if you have a time horizon of a few years.
VYORST: Value investing definitely takes patience because you are buying things when people don't want to buy them.
MILLER: But whether it's stocks or socks, for some people, bargain hunting is the best way to shop. Erika Miller, NIGHTLY BUSINESS REPORT, New York
