Where This Year’s Benchmark-Beating Funds See Value

Canada’s Alamos Gold owns the Island Gold mine in Ontario. The stock has taken off as the prices of gold has risen this year. (Courtesy Alamos Gold Inc.)

While it isn’t easy for actively managed mutual funds to beat their benchmarks, value-fund managers have been pulling it off, partly because the index they measure themselves against has been moving like a tortoise.

They haven’t had to keep pace with the artificial-intelligence growth stocks boosting the broader market. Year to date, the Russell 1000 Value Index has returned just 14%, compared with nearly 18% for the growth version of the index, where returns have been juiced by names like Nvidia, Broadcom, and Meta Platforms.

“Value funds…have not been as challenged by index concentration and narrow breadth,” wrote BofA Securities strategist Victoria Roloff in a note published Wednesday.

So far this year, nearly 60% of large-company value managers have delivered outperformance by beating the Russell 1000 Value Index. That is a far better mark than managers who follow other investing styles, according to BofA Securities. Just 30% of large-cap core managers beat the Russell 1000 , and 32% of growth managers beat the growth version of the index.

So which value managers are leading the pack? A look into Morningstar’s database suggests top performers are those willing to make unorthodox choices—including, perhaps, stealing a page from the growth investing playbook.

It is worth noting that many funds that Morningstar categorizes as “value funds” own growth stocks or other assets that might not seem to fit a value-investing mandate. Its categorizations are based on its own interpretation of a fund’s holdings, which don’t necessarily match the fund’s stated investment strategy.

The top value-category performer this year, a fund Barron’s highlighted back in April, is Forester Value Fund with a 19% year-to-date return. It is an unusual fund, specifically designed to navigate rocky markets, with significant exposure to bonds and gold.

The strategy doesn’t pay off in all market conditions. Over the past decade, it has managed average annual returns of just 1%, in the bottom percentile among value funds. But this year, its bets are delivering big time, in part because of the huge bull run in gold, which hit yet another record high earlier this week. Among the fund’s top three holdings: Alamos Gold is up 68% so far this year, and Agnico Eagle Mines is up 85%.

Other funds at top of the year-to-date value fund performance list are more orthodox stock-picking strategies. But in many cases they have still benefited from a flexible investing approach, owning stocks that don’t necessarily fit the classic value mold.

Among the top handful of year-to-date performers are Artisan Select Equity Fund Institutional, which has returned 17%, and Clipper Fund , at 16%. One holding common to both funds is Meta, which is the largest position in the Artisan portfolio and No. 2 in Clipper’s. The growth-oriented Magnificent Seven member is up 25% year to date.

Write to Ian Salisbury at ian.salisbury@barrons.com