Value And Dividend Fund Performance During Bear Markets

by: Charles Bolin

Mutual Fund Observer data was screened to develop a list of funds that are value and income oriented using price to earnings, price to book, and dividend yield.

The list of funds is refined by risk and risk adjusted returns using the Ulcer Index, Bear Market Rank, Martin Ratio and Ferguson Metrics.

Top Value and Income Mutual Funds and Exchange Traded Funds are identified.

Pulse of the Market

The S&P 500 started 2018 around 2,496 for a gain of less than 3% during the past 14 months. The low point of 2,448 occurred around January 3rd, 2019 for a drawdown of 9% from the January 2018 start.

Chart Data by YCharts

The current bullish trends appear to be abating as shown in the Momentum Indicator, Moving Average Convergence Divergence, below. I believe that the risks of recession are rising for 2020, and we will continue to see high volatility for 2019.

Source: Created By the Author


Last week, in "Business Cycle: Simple Portfolios By Stage" I showed that Value Funds tend to do relatively well in Business Cycle Late Stages and Recessions. In "Managing Portfolio Risk" earlier this month, I described a monthly series of articles that selects funds based on Risk, Risk Adjusted Returns and Momentum that identified Large Cap Value Funds as a top Equity Lipper Category and highlighted four of the Value/Equity Funds evaluated in this article.

Let's begin by looking at how Value, Equity Income, and Core Lipper Categories performed during the past two recession related bear markets. During the 2000 Bear Market, Domestic and Global Value funds and Domestic Equity Income provided safety, but not in the 2007 bear market. In this article, I look for Value and Dividend funds that have done better than average during past bear markets and are likely to do so going forward. The table below is sorted by the average performance in the two bear markets from best at the top to worst at the bottom. Depending upon the severity of the bear market, diversifying globally and holding value and dividend funds may provide some protection.

Sep 2000-Sep 2002 Nov 2007-Feb 2009
Return Max %DD Return Max %DD
Global Large-Cap Value -6 -23 -38 -47
Intern Small/Mid-Cap Value -3 -13 -48 -58
Global Multi-Cap Core -2 -18 -43 -53
Global Multi-Cap Value 7 -23 -41 -52
Equity Income -8 -26 -40 -49
Intern Small/Mid-Cap Core -9 -19 -47 -57
Mid-Cap Core -10 -28 -41 -50
Small-Cap Value 1 -25 -43 -53
Mid-Cap Value 0 -26 -42 -53
Small-Cap Core -8 -28 -42 -51
Multi-Cap Value -7 -27 -44 -54
Large-Cap Value -9 -28 -43 -53
Intern Multi-Cap Value -14 -29 -48 -58
Multi-Cap Core -19 -38 -41 -51
Large-Cap Core -20 -40 -41 -50
Intern Large-Cap Core -18 -34 -47 -57
Global Equity Income -22 -42 -44 -54
Intern Multi-Cap Core -22 -40 -47 -57

Source: Created By the Author Based On Portfolio Visualizer Data

Overview of The Funds

All Equity Income, Core, and Value Funds were downloaded from Mutual Fund Observer excluding funds with high fees, load fees, high initial purchases, or were closed to new purchases. Metrics from the past five years were used to determine how funds would perform during down markets. Risk (Draw Down, Rolling 1 and 3 year minimum returns, Ulcer Index, Bear Market Deviation and Rank), Return (Risk Adjusted, Absolute, Relative to Peers, and Ferguson Metrics), Valuation (Price to Earnings and Price to Book Value), and Dividend Yield were used to trim the list of funds.

I chose eleven funds for further evaluation. The S&P 500 (SPY) is shown for comparison. The bottom four funds shown below are global or international. In general, Domestic Funds outperformed in 2014 and 2016, while underperforming in 2015, 2017, and 2018. Also noticeable in 2015, AMG Yacktman Focused (YAFFX) fund had poor performance, even though it has great long term performance.

Source: Portfolio Visualizer

The cumulative performance is shown below for the four year time period from 2015 to January 2019. The dashed red lines are Global/International funds and the solid blue lines are Domestic. Over the past four years, the selected funds have underperformed the S&P 500.

Source: Created By the Author Based On Portfolio Visualizer Data

Over the past 12 months though, the funds have begun to outperform the S&P 500 as shown below because investors have become more defensive and risk averse.

Source: Created By the Author Based On Portfolio Visualizer Data

From Portfolio Visualizer for the time period January 2014 through January 2019, the metrics are shown below. All of the funds have decent returns, but with lower volatility, and drawdowns than the S&P 500. YAFFX and ACWV have the lowest correlation to the US Market. The Sortino Ratio is a measure of the risk adjusted returns. All of the funds with the exception of DLN have higher risk adjusted returns than the S&P 500.

Ticker Name Return Stdev Max. Drawdown Sharpe Ratio Sortino Ratio US Mkt Correlation
SPY SPDR S&P 500 9.0% 12.0% -13.5% 0.7 1.1 1.00
TWEIX American Century Eq Inc 8.2% 8.9% -7.7% 0.8 1.4 0.92
SDY SPDR S&P Div 9.1% 10.8% -7.9% 0.8 1.3 0.91
DLN WisdomTree US LrgCap Div 7.8% 11.1% -10.8% 0.7 1.0 0.97
MGV Vanguard Mega Cap Value 8.4% 11.6% -10.0% 0.7 1.1 0.96
YAFFX AMG Yacktman Focused 8.2% 9.9% -10.7% 0.8 1.4 0.79
FVD First Trust Value Line Div 8.8% 9.5% -7.6% 0.9 1.4 0.88
LDIFX QS Global Div 6.8% 8.3% -8.6% 0.7 1.2 0.86
ACWV iShares Edge MSCI Min Vol Global 7.8% 8.8% -7.1% 0.8 1.3 0.80
MVGIX MFS Low Vol Global Eq 6.9% 9.0% -8.1% 0.7 1.1 0.86
VMNVX Vanguard Global Min Vol 8.3% 7.6% -8.2% 1.0 1.5 0.89

Source: Created By the Author Based On Portfolio Visualizer Data

Risk Adjusted Returns Versus Risk

Higher risk does not necessarily translate into higher returns. Below are the final funds with Risk Adjusted Returns (Martin Ratio) compared to Risk (Ulcer Index). The S&P 500 (SPY) is shown for comparison. Of particular interest to me are the funds in the blue box that have lower risk and higher risk adjusted returns over the five year period. These are the global, equity income, and multi-cap value funds.

Source: Created By the Author Based on Mutual Fund Observer Data

Mutual Fund Observer

As a standard practice, I use metrics from Mutual Fund Observer to measure risk and risk adjusted returns. Below are the metrics for the past five years. The Great Owl (GO) classification is shown which means the funds are in the top quintile based on Risk Adjusted Returns for their category. As discussed above, all of these funds are moderately risky with respect to bear market performance. The three global funds have lower risk profiles. Most of the funds have higher dividend yields than the S&P 500.

Symbol LipperCategory GO? Risk Rating Sharpe MAX DD% Div Yield
VMNVX Global Small-/Mid-Cap Yes 3 5 1.3 -8.2 2.3
ACWV Global Multi-Cap Core Yes 3 5 1.0 -7.5 2.2
LDIFX Global Equity Income Yes 3 5 0.9 -8.6 2.7
FVD Multi-Cap Value Yes 4 5 1.1 -7.6 2.3
TWEIX Equity Income Yes 4 5 1.1 -7.7 2.0
SDY Equity Income No 4 5 1.0 -7.9 2.6
YAFFX Large-Cap Value Yes 4 5 1.0 -11 1.4
SPY S&P 500 Index No 4 5 0.9 -13.5 1.9
MGV Large-Cap Value No 4 5 0.9 -10.1 2.5
MVGIX Global Multi-Cap Core Yes 4 5 0.9 -8.1 1.7
DLN Large-Cap Core No 4 4 0.9 -10.8 2.7

Source: Created By the Author Based on Mutual Fund Observer Data


Morningstar gives all of the funds four stars or higher, and generally with a good analyst rating. It also gives each of them a better bear market rating than the S&P 500. My personal preference is for the funds in the top half of the table because of their lower volatility, and performance in downturns. Those with higher dividend yields are often associated with higher risk or slower growth.

Ticker Stock Industry/Fund Category Rating Analyst Rating Bear Market % Rank Return 12 Month Std Dev Div Yield
ACWV World Lrg Stk 4 Silver 16 5.4 8.6 2.2
LDIFX World Lrg Stk 4 16 2.0 8.5 2.7
VMNVX World Small/Mid Stock 4 Silver 16 6.8 7.6 2.3
YAFFX Large Blend 4 Silver 22 9.0 8.0 1.4
TWEIX Large Value 4 Silver 22 4.9 8.8 2.0
FVD Large Value 5 Neutral 23 7.6 9.6 2.3
MVGIX World Lrg Stk 4 23 5.7 8.3 1.7
SDY Large Value 5 Silver 31 8.6 10.7 2.6
DLN Large Value 4 Bronze 42 3.5 10.3 2.7
MGV Large Value 4 Silver 51 3.7 10.8 2.5
SPY Large Blend 4 Gold 55 3.5 11.2 1.9

Source: Created By the Author Based On Morningstar Data

Bear Market Performance

Below are how the funds have performed recently and in the 2008 Bear Market. During the five year period that it took the S&P 500 to recover, TWEIX, SDY, YAFFX, and FVD outperformed with lower drawdowns. During the past 12 months, these funds along with the global funds have outperformed the S&P 500. Again, those toward the top of the table have been better performers in bear markets.

Feb 2018 - Jan 2019 Jan 2008 - Dec 2012
Ticker Name Return Max % DD Return Max % DD
YAFFX AMG Yacktman Focused 5.9% -4.7% 10.6% -36.9%
SDY SPDR S&P Dividend 1.4% -7.9% 5.1% -42.1%
FVD First Trust Value Line Div 1.4% -7.6% 5.3% 39.5%
TWEIX American Century Eq Inc -1.4% -7.7% 3.3% -31.2%
VMNVX Vanguard Global Min Vol 2.0% -8.2%
ACWV iShares Edge MSCI Min Vol Global 0.6% -6.4%
MVGIX MFS Low Vol Global Eq 0.8% -7.1%
DLN WisdomTree US Lrg Cap Div -2.7% -10.8% 1.6% -50.7%
MGV Vanguard Mega Cap Value -2.5% -10.0% -0.4% -51.3%
LDIFX QS Global Dividend -2.5% -8.6%
S&P 500 -2.4% -13.5% 1.7% -48.2%

Source: Created By the Author Based On Portfolio Visualizer Data

Below is the performance of the funds that existed in the 2008 Bear Market. TWEIX, SDY, YAFFX, and FVD did well.

Source: Portfolio Visualizer

Only TWEIX and YAFFX were in existence during the 2000 bear market. YAFFX tends to outperform, but does have off years. Owning both TWEIX and YAFFX would smooth outperformance.

Source: Portfolio Visualizer

What Sets These Funds Apart?

Below are the strategies of the funds. Again, the funds that I like are listed at the top of the table.

Ticker Strategy And Thoughts
TWEIX TWEIX invests 75 to 85% in dividend stocks where the company has a competitive advantage over peers, low debt, good returns and low valuations. It invests in convertible bonds and preferred stock. The Fund typically holds about 100 securities and rotates to control valuation risk. The Team screens stocks for returns on capital, leverage, valuations, risk/reward ratios. TWEIX manages investments in the manner that I like so that I can buy and hold. The fund is not particularly tax efficient and may be most suited for retirement accounts.

YAFFX tends to migrate to value stocks late in the business cycle and to hold more cash which reduces risk in downturns. The fund invests for the long term in quality companies with strong free cash flows, reasonable debt, and high returns on capital. Annual turn over is low. It is highly concentrated which sometimes results in losses. It tends to hold consumer staples and discretionary stocks.

VMNVX Vanguard uses historical market volatility and correlations to reduce risk. It tends to overweight consumer staples and utilities. VMNVX invests in highly profitable companies with higher return on capital. It is a good investment for investors who want to reduce risk while maintaining exposure to stocks.
ACWV ACWV is a diversified, low cost ETF that optimizes allocations to minimize risk. It tends to overweight defensive and utility sectors while under-weighting volatile sectors. Low expenses help returns.
SDY The fund tracks the S&P High Yield Dividend Aristocrats Index which consists of companies that have raised dividends for 20 consecutive years. SDY has a focus on stable stocks that tend to do better during downturns. Over 55% of allocation is to small and mid-cap stocks.
FVD FVD invests in low-volatility, profitable stocks with high dividend yields. It tends to invest heavily in utility stocks and tilts toward small cap stocks. FVD has high risk adjusted returns, but may tend to underperform at times due to its over-weighting in utility stocks. Fees are relatively high (0.7%) for an ETF. About 35% is invested in small and mid-cap companies.
MVGIX MVGIX mostly invests in large cap core stocks, but is also 21% in medium sized companies. It has $232M in assets. The fee is 0.7% The fund is diversified and has done well.
DLN DLN invests in profitable dividend stocks weighted by dividend payments which keeps its risk down. DLN is highly diversified, and is overweighted in consumer staples and underweighted in the financial sector.
MGV MGV invests in cheaper and slower growing mega-cap stocks. It is low cost and has low turnover. MGV is my least favorite of the funds because the universe of stocks tends to be slower growing and often higher risk, but this is partly offset by very low fees.
LDIFX LDIFX is invested 57% in US stocks with the rest mostly in developed countries. The fund is diversified and has done well.

Source: Created By the Author Based On Morningstar Data

My Favorites

Below are my favorite funds researched for this article that I would consider holding on a long term basis. I like TWEIX and YAFFX because they are holding cash while valuations are higher. I also like the multi-cap funds that have the ability to invest across asset classes.

Symbol LipperCategory Managed Volatility Enhanced % Equity % Large Cap
VMNVX Global Small-/Mid-Cap Yes Yes 98 47
ACWV Global Multi-Cap Core Yes No 100 80
FVD Multi-Cap Value No No 100 62
TWEIX Equity Income No Yes 84 81
SDY Equity Income No No 93 50
YAFFX Large-Cap Value No No 78 97

Source: Created By the Author Based on Mutual Fund Observer Data


In the "Pulse of the Market" at the top of the article, the stock market has returned little more than bonds over the past 12 months. I expect a recession in 2020 or 2021, and for the market to be volatile during 2019. I follow Benjamin Graham's guidelines of keeping a minimum of 25% in stocks. To reduce risk, I have been reducing exposure to equities and rotating into funds like these that do better now and in a Bear Market.

Disclosure: I am/we are long YAFFX, VMNVX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am an engineer with an MBA nearing retirement and not an economist nor an investment professional. The information provided is for educational purposes and should not be considered as advice. Investors should do their due diligence research and/or use an investment professional.