What is a ‘Value Fund’
A value fund is a stock mutual fund that primarily holds stocks that are deemed to be undervalued in price and that are likely to pay dividends. Value funds are one of three main mutual fund types; the other two are growth and blend (a mix of value and growth stocks) funds.
Explaining ‘Value Fund’
Every large mutual fund family has a value fund component in which funds are often broken down by size. For example, a fund family may include small-, mid- and large-cap value funds for investors to choose from. The premise of value investing is that the market has inherent inefficiencies that enable companies to trade at levels below what they are actually worth. In theory, once the market corrects these inefficiencies, the value investor will see the share price rise.
A common misconception is that value investors simply seek out stocks with low price/earnings ratios. Although this can be a characteristic of an undervalued company, this is not the sole feature that astute value investors seek.
Further Reading
- The economics of short-term performance obsession – www.tandfonline.com [PDF]
- The law and economics of hedge funds: Financial innovation and investor protection – heinonline.org [PDF]
- Corporate research and development expenditures and share value – www.sciencedirect.com [PDF]
- Rational herding in financial economics – www.sciencedirect.com [PDF]
- Experiential learning for undergraduates in economics and finance: A true top-down investment fund – www.jstor.org [PDF]
- The economics of structured finance – www.aeaweb.org [PDF]
- Board structure and fee-setting in the US mutual fund industry – www.sciencedirect.com [PDF]
- What is behavioral finance? – papers.ssrn.com [PDF]
- Money order debit from stored value fund – patents.google.com [PDF]
