After a cycle of underperformance, value funds have made a comeback. Their one-year returns vouch for their performance.
However, with the markets scaling newer heights and the economy striving to get back to the pre-covid level, what do value funds seem to offer? Is it a trap to be wary of or is it a gateway to opportunities?
Read on to know what the experts believe.
Sonam Udasi, Senior Fund Manager, Tata MF feels that value funds take time to pay off. He said, “The value space has improved post-pandemic. Liquidity injection by the central bank has created a rush towards value funds and these funds can be looked at as growth engines. Wealth creation is a continuous process and looking at the deep value rather than the growth potential is a myopic view to hold. Further, as value takes time to unfold, it is important to exercise patience in value fund investing."
Daylynn Pinto, Senior Fund Manager, IDFC MF believes that only long term investors should explore value funds. Pinto said, “Companies on the downside of business cycle, on the path of deleveraging or business transformation, take a spot in the value space. It typically takes three to five years for the key developments to play out and for their intrinsic value to uncover. Value funds have been catching up over the past year & a half and could be considered by investors having a long-term view. As the last decade indicates, investors opting for value fund investing must brace themselves for volatility.”
Sahil Kapoor, Head of Products and Market Strategy, DSP MF feels that value style will continue to give attractive returns. “Lack of overall growth meant that companies which were not able to grow as fast remained relatively cheaper although the balance sheets remained fairly robust. Now in the cycle there seems to be a general return of broader growth in the economy. This is making attractively priced companies witness a revival in business cycle. Thus value style has begun to see performance and this trend is likely to continue.”
Mumbai MFD Sadashiv Arvind Phene said that value funds are comparatively less volatile. “These funds hold the potential to deliver superior returns in the long run,” shared Sadashiv.
Vinod Jain of Jain Investment, Mumbai feels that investors should first review value funds investment mandate. He said, “Investors wanting to venture into the equity side can explore it through value funds. However, they must have a clear understanding of the term ‘value’ as it is highly subjective. Here is where it becomes important to review the fund’s investment mandate. Further, given that the market valuation is currently not cheap, it is advisable to have a staggered investment style and refrain from having high expectations.”
Srikanth Matrubhai of SriKavi Wealth, Bangalore sees value funds good for first time investors. He said, “In every bull market, value funds are brought into focus as they invest in companies trading at lower valuations. With its safety-first approach, value funds make sense for first-time equity investors. The risk-reward may seem favourable but if the bull continues to ride high, investors could lose on the potential wealth creation. A flexicap recommendation could thus be optimal, where the fund manager will have the leeway to choose stocks, whether value or growth.”
