Why Deep-Value Funds Could Be Ready to Rebound

Stan Luxenberg, our long-time mutual fund contributing editor, often write me ideas that, well, we don't always feature because of some other pressing mutual fund trend, sector, and funds to write about. I thought I would share this brief note with you. Of course, to wade into these kinds of funds, you have to have a strong stomach as these are contrarian plays. Oh, and be willing to hold them for a long time. As one contrarian value investor I used to know told me back when I worked at SmartMoney, "I waited three years for my money to double overnight."

Stan writes: "Deep-value funds have lagged in recent years. Not many investors were keen to buy the kind of troubled stocks that deep-value managers prefer. As a result, stocks in the cheapest 10% of the market sell at big discounts to their normal levels, as measured by price-book ratios. Studies show that after hitting such troughs, deep-value stocks tend to outperform by wide margins. Make no mistake, depressed shares can be volatile. But by buying now and holding patiently, investors could get solid returns. Top deep-value funds include Aegis Value [1], AllianceBernstein Value [2], and Hotchkis and Wiley Value [3]."