Tilting Towards Value and Small Cap Stocks

Growth investing involves looking for companies with rising sales and profits, companies that either dominate their markets or are on the verge of doing so. These companies are typical of those in the S&P 500 Index.

Value investing, on the other hand, involves looking for companies that have gone out of favor for investors for the time being and may be temporary bargains. This could happen because of poor management, weak finances, new competition, regulations, changing economic conditions or so.

Value stocks are regarded as bargains and are expected to return to their “normal” levels when the market perceives their prospects more positively. At the end of January 2013, following companies comprised of the top five stocks in the Vanguard Large Cap Value Index fund. These companies are: (1) Exxon Mobil Corp. (2) General Electric Co. (3) Chevron Corp. (4) Procter & Gamble Co. (5) Johnson & Johnson.

Below is the product summary of the Vanguard Large Cap Value Fund.

This fund invests in stocks of large U.S. companies in market sectors that tend to grow at a slower pace than the broad market; these stocks may be temporarily undervalued by investors. This low-cost index fund follows a buy-and-hold approach, and invests in all of the stocks contained within its broad benchmark. In addition to general stock market volatility, the fund’s primary risk comes from the fact that at times its focus on large-capitalization value stocks may underperform the broader stock market.The process is the same for small-cap stocks. Although the most popular stocks are growth stocks, research has shown that, value stocks have historically outperformed growth stocks. This has been true of large-cap stocks and small-cap stocks, and it is true of international stocks as well.

This is a reason why your portfolio should be properly balanced between all different classes.