Value-oriented funds are having a moment, even overseas.
Foreign-stock fund Janus Henderson Global Equity Income (HFQTX) – a member of the Kiplinger 25, the list of our favorite low-fee mutual funds – is above water over the past 12 months, despite a selloff in nearly every developed-country stock market around the globe. Its 0.5% return over the past year beat the MSCI EAFE Index, which dipped 11.1% over the same period.
A focus on dividend stocks has helped, as has maintaining a diversified portfolio. Some sectors that had been weak in recent years are now doing well. “We have seen change in the mix of market leaders,” co-manager Ben Lofthouse, who runs the fund with Alex Crooke and Job Curtis, said in a recent commentary.
Materials, mining, and oil and gas companies performed well, thanks to a rise in commodities prices. “Many of these companies generated a lot of cash, paid down debt, and in some cases paid special dividends,” says Lofthouse.
Stock in French multinational energy company TotalEnergies (TTE), for instance, climbed 29% over the past 12 months. The firm recently hiked its dividend 5% and raised its share-repurchase program to $3 billion from $2 billion announced at the end of 2021.
Meanwhile, some traditionally defensive sectors shone too, including healthcare. Shares in U.S. drugmaker Bristol Myers Squibb (BMY) have risen 23% since the start of the year; Merck (MRK) stock is up 18%.
The managers look for dividend-paying companies that generate cash, are leaders in their industries and have stocks that trade at sensible valuations. Although 12% of the fund’s assets are invested in U.S. stocks, the portfolio holds mostly stocks in foreign developed countries.
Its exposure to emerging-markets stocks is limited to South Korea, where 2% of assets are invested, and Taiwan, with 1.6%. That’s partly why the impact of the Ukraine invasion on the portfolio has so far been “small,” the managers said.
Over longer stretches, the fund’s long-term record doesn’t disappoint, relative to peers. It has returned 4.2% annualized over the past five years, ahead of the 3.1% average annual return of its peers, funds that invest in value-priced, large foreign companies.