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Should Value Investors Buy Mutual Funds?

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  • (1:00) - Are Mutual Funds A Good Value Play?
  • (8:30) - Tracey Top Fund Picks
  • (19:45) - Episode Roundup: RVT, FEVAX, VBR, RZV, VIOV
  • Podcast@Zacks.com

Welcome to Episode #173 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Recently, a fan tweeted at Tracey about investing in a stock with a ticker she had never heard of before and which didn’t have a Zacks Rank.

It turns out that the ticker was for a value mutual fund.

Should Value Investors Buy Mutual Funds?

Mutual funds were all the craze in the 1980s and 1990s but in the new century, ETFs had grown in favor, mostly due to their lower expense ratios.

Additionally, the tide had turned against “active” management towards passive, where the ETF fund closely mirrored an index like the Russell 2000 or the S&P 500.

But should investors reconsider the mutual fund?

Paying for Expertise

The Royce Value Trust (RVT - Free Report) is a small cap closed-end fund that has been managed since 1986 by Chuck Royce. That is 34 years of experience.

It outperformed its benchmark, the Russell 2000, last year returning 35.2% compared to the Russell at 25.5%.

It also outperformed over the 5, and 20 year, periods, as well as from inception in 1986.

You’ll pay a higher price for the active management, with total fees of 0.6%.

Investors may even have to pay a load with some funds including First Eagle’s US Value Fund FEVAX which has a 5% load for investments under $25,000 and annual operating expenses of 1.1%.

Competition from ETFs

There’s always competition, though, from ETFs which have cheaper fees.

Vanguard’s Small-Cap Value ETF VBR has an expense ratio of just 0.07%.

Invesco’s S&P Small Cap Pure Value ETF RZV has an expense ratio of 0.35%.

Investors can also just buy the index including Vanguard’s S&P 600 Small-Cap Value ETF VIOV. The expense ratio is 0.15%.

Should investors just stick with the cheaper ETFs or can actively managed mutual funds be worth the price?

Find out the answer to this and more on this week’s podcast.

[In full disclosure, Tracey owns shares of VBR in her personal portfolio.]

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