Mutual funds are pools of money that investors entrust to professional managers, who invest them in a diversified portfolio of stocks, bonds, or other assets.
They offer benefits of diversification, professional management, low costs, and liquidity. An important to any investor’s portfolio, they provide exposure to different sectors and regions that can enhance returns and reduce risk over time. However, finding the best mutual fund is not always an easy task. Plenty of mutual funds offer lukewarm performance or high fees or uncompelling strategies.
Outperforming their benchmarks and peers over the long term, below are three undervalued mutual funds worth considering for 2023.
Heartland Mid Cap Value Fund (HRMDX)
The Heartland Mid Cap Value Fund (HRMDX) invests in mid-sized companies that are undervalued based on their earnings, cash flow, or assets.
Heartland Mid Cap’s fund managers use a bottom-up approach to find companies with strong balance sheets, competitive advantages, and growth catalysts. Also, the fund avoids companies with excessive debt, poor governance, or ESG issues.
Will Nasgovitz, current portfolio manager of HRMDX, also serves as the company’s CEO. Heartland’s strategy typically leads them to hold between 50 and 70 stocks, with a median market cap of $11 billion. This strategy is compelling for investors who want exposure to smaller companies that are maintaining stable growth rates in their respective markets.
The fund has delivered impressive long term results, beating its benchmark, the Russell Midcap Value Index. In particular, Heartland Mid Cap has returned 10.7% as of the end of August, compared to 5.9% for the index. The fund also ranked in the top 1% of its category in the past one-, three-, five-, and 10-year periods.
The Heartland Mid Cap Value’s top holdings as of the second quarter included NOV (NYSE:NOV), Teradata (NYSE:TDC), and Centene Corporation (NYSE:CNC). These holdings span oil and gas, cloud computing, and healthcare spaces, respectively, providing investors with a diverse stock composition.
Vanguard Growth Index Fund Admiral Shares (VIGAX)
The Vanguard Growth Index Fund (VIGAX) invests in large-cap growth stocks that have strong earnings growth, high return on equity, and positive price momentum. The fund’s managers use an index approach to track the performance of the CRSP US Large Cap Growth Index, a benchmark that represents about half of the U.S. large-cap stock market.
Gerard O’Reilly has advised the fund since 1994 and seems to be having a great year in terms of fund performance. From the beginning of the year until the end of August, the Vanguard Growth Index Fund has returned 36.1%, compared to 36.2% for its benchmark.
This also brings the fund well ahead of the Nasdaq which has rallied 34.1% for the same period. Taking a glance at the Vanguard Growth Index Fund’s top holdings, it’s easy to understand why. The fund’s top holdings as of Dec. 31, 2022 included Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Nvidia (NASDAQ:NVDA).
All of these stocks have rallied significantly this year after reaching substantial lows in 2022. If the rally continues based on positive economic news, then holders of the Vanguard Growth Index Fund should fare well.
Baird Aggregate Bond Fund (BAGSX)
If you’re an investor desiring exposure to the lucrative bond market, the Baird Aggregate Bond Fund (BAGSX) may be just for you.
This fund invests in investment grade U.S. dollar denominated bonds across the fixed-income market. The fund’s managers use a top-down approach to assess the macroeconomic environment and allocate the fund’s assets among various bond sectors. The fund also uses a bottom-up approach to analyze the attractiveness of select individual bonds offering attractive yields, credit quality, and duration.
The fund has been co-managed by Mary Ellen Stanek and Warren D. Pierson since 2000, and they have managed the fund to hold more than 1,700 bonds with an average duration of six years. The Aggregate Bond Fund has delivered consistent results over the long term, beating its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. The fund investor shares have returned 2.2% year to date, while its institutional shares have returned 2.43%. Both return rates are above the benchmark return which was 2.1%.
With interest rates still elevated and another hike still possible, bondholders could definitely benefit from holding shares in the Baird Aggregate Bond Fund.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
