Value Fund Definition & Investment Strategies

Value Funds Definition

Value funds are investment vehicles comprised of undervalued stocks which pay high dividends.  Value funds are often a place investors flight to during an economic downturn.  Value funds saw a large increase in investment dollars as a result of the 2008 credit crisis.

Value fund managers have the arduous task of identifying undervalued stocks in the market.  This process is based on fundamental analysis techniques, where stocks with low price to earnings ratios are tagged.  These stocks are then reviewed to see which ones have the greatest growth potential as well as paying high dividends.

Negatives of Value Funds

Value funds are perceived as "safe" investments, since they have low volatility and are long-term investments.  The reality of it is that these undervalued stocks can remain cheap for an extended period of time.  Thus reducing the amount of return relative to the risk associated with the investment.

Value Funds and Your Portfolio

Value funds are a key part of any asset mix for an investment portfolio.  Since value funds react slowly to market movements, it is a good idea that as an investor approaches their retirement date, value funds become a larger part of their portfolio.