How to go about value funds in 2020?
The past two years have been very bad for the value-oriented equity funds. This has raised a concern among many investors, which has put them in a dilemma as to, whether there is any point in investing in this theme. If we look at its performance in the past one-year, then we would notice that the category average returns stood at 1.59 per cent, while, 43 per cent of the funds gave negative returns and 40 per cent of them clocked single digit return.
For those who are not aware, value funds are those that try to identify presently undervalued stocks and also, that have not been discovered yet by the market. They buy these stocks and wait for the market to adjust towards its true value. Once the market realises its true value, value funds make money. Value funds adhere to buy and hold strategy. Hence, value fund investors are required to have a lot of patience.
Value investors believe that its underperformance is due to the fact that from the past few years, the markets are favouring growth stocks. The value funds have hit due to the de-rating in the stocks that have shown slower growth. A value investor never chases growth stocks of short-term gains. Hence, they need to wait for the markets to realise the true value of stocks.
As a value investor, it is very difficult to say when the value funds would start providing rewards. Hence, if investors are investing in a fund that follows value style of investing, then they need to have patience. Value funds are not the ones, which would woo the investors all the time, with its performance. However, in the long-run, they indeed provide a good amount of downside protection.
Having said that, it is advisable to say-if you are investing in value funds through Systematic Investment Plan (SIP) then, you should clearly have an investment horizon of not less than seven years. Value fund is something that is not suitable for all the investors. Hence, in such a case, seeking experts’ advice is recommended, who will look at your overall situation before advising. So, all in all, if you are a long-term investor with a moderate to high risk appetite then, you might consider investing in value funds. At the same time, keep your exposure low, that is, 15 per cent to 20 per cent, towards them.