Mutual fund returns have hardly been stable as the stock market has become increasingly jittery over the last year or two. Particularly, mutual fund investment over the last year has been confused by the market’s move from exuberance in late 2009 to persistent economic worries in 2010.

Though the S&P 500 Stock Index is up about +9% over the last 12 months, most mutual fund returns appear to be flat. Investors are now hanging on every economic data point, unwilling to commit more capital without assurances that a double-dip recession is not on the horizon.

In such uncertain times, stocks of undervalued companies can provide a solid foundation; their value can hold up better in adverse market conditions since expectations are so low in the first place. Such stocks aren’t immune to market turbulence, but their inherent underlying value limits their downside. When and if other investors recognize that a stock is undervalued, the upside can be big even without an upward move in the market. Value investing is about picking stocks rather than betting on where Wall Street is headed.

Value mutual funds have outperformed growth funds year to date, with performance driven by mid- and small-cap funds. Each of the following value funds outperformed the S&P 500 in the year ended August 13 and is in the black year to date (versus the nearly -2% decline of the index).

Their performance has been solid, if unspectacular, as one would expect from funds with limited volatility compared with the overall market. The beta, or volatility, of these funds has been comparable to that of the S&P 500 over three years, according to Morningstar, which ranks all of them four stars or higher (out of five).

RidgeWorth Mid-Cap Value Equity Fund (SMVFX)

12-Month Return: +15.2%
Manager: Don Wordell (since 2001)
Total assets: $1.0 billion
Load: 1.0% (deferred)
Expenses: 2.05%
Minimum initial investment: $5,000 ($2,000 for IRAs)

The RidgeWorth Mid-Cap Value Equity Fund nearly doubled the performance of the S&P 500 over the past year and is up a respectable +2.4% percent year to date — not bad considering that the overall market is down -2% as of this writing. The fund also is well ahead of its Morningstar category over every time period in the last five years. That is remarkable consistency. Longtime portfolio manager Don Wordell assesses the fundamentals, valuations and dividends of mostly U.S. companies, looking for those that are undervalued relative to their industry or their own historical valuations. Wordell buys and sells aggressively, with an annual portfolio turnover of 195%. That means the entire lineup changes every six months, on average. The minimum initial investment is a bit high but not prohibitive at $5,000. The fund is much more accessible through an IRA.

Top 5 holdings as of June 30 include: Flowserve Corp. (NYSE: FLS) at 3.2%, MB Financial Corp. (NASDAQ: MBFI) at 3.0%, Comerica Inc. (NYSE: CMA) at 2.6%, Noble Energy Inc. (NYSE: NBL) at 2.6% and Best Buy Co. (NYSE: BBY) at 2.5%.

Vanguard Selected Value (VASVX)

12-Month Return: +12.5%
Managers: James Barrow (since 1999), Mark Giambrone (2002), Richard Lawrence Greenberg (2005), Donald Gene Smith (2005)
Total assets: $3.4 billion
Load: None
Expenses:  0.47%
Minimum initial investment: $25,000

Vanguard Selected Value has a high minimum investment of $25,000 — and partly as a result (with fewer shareholders to deal with) has a rock-bottom expense ratio of 0.47%. That’s a great deal if you can swing the up-front cash, particularly given this fund’s performance. Selected Value gained +12.57% over the past 12 months and has managed a positive return of +1.25% year to date as of this writing. Both results are well ahead of the S&P 500 and the fund’s Morningstar Large Value category. The fund is team-managed by two separate outside advisors, with about three quarters of the portfolio managed by Barrow, Hanley, Mewhinney & Strauss LLC and a quarter by Donald Smith & Co. Lead manager James Barrow also is the longtime manager of Vanguard’s giant Windsor II Fund. The advisors look for companies with below-average valuations based on measures such as earnings and book value. The fund follows a buy-and-hold approach, with annual portfolio turnover of just 30%.

Top 5 holdings are PNC Financial Services Group Inc. (NYSE: PNC) at 2.4%, Capital One Financial Corp. (NYSE: COF) at 2.4%, Pinnacle West Capital Corp. (NYSE: PNW) at 2.3%, Eaton Corp. (NYSE: ETN) at 2.3% and Newell Rubbermaid Inc. (NYSE: NWL) at 2.2%.

Fidelity Small-Cap Value (FCPVX)

12-Month Return: +10.6%
Manager: Charles L. Myers (since 2008)
Total assets: $2.1 billion
Load: None
Expenses:  1.20%
Minimum initial investment: $2,500

Fidelity Small-Cap Value’s returns of over +10% in the past year and decent gains of about +2% year to date are ahead of both the S&P 500 and its Morningstar Small Value Category. The fund is affordable with a minimum initial investment of $2,500. Manager Charles Myers is a fundamental, bottom-up investor who seeks to identify companies that are cheap in relation to assets, sales, earnings, growth potential, cash flow or industry valuations. The fund is substantially overweighted in the financial services sector, with more than a third of assets there compared with the 25% average of the Morningstar Small Value category. Myers has only been at the helm for three years, but a short tenure can be typical of Fidelity Funds, where managers are constantly groomed for bigger and better things. Portfolio managers (and investors) count on Fidelity’s large in-house research staff for their expertise. Fidelity Small-Cap Value follows a buy-and-hold strategy with an annual portfolio turnover of just 30%.

Top 5 holdings include Wesco International Inc. (NYSE: WCC) at 3.2%, Astoria Financial Corp. (NYSE: AF) at 3.0%, Superior Energy Services Inc. (NYSE: SPN) at 3.0%, HNI Corp. (NYSE: HNI) at 2.9% and Platinum Underwriters Holdings Ltd. (NYSE: PTP) at 2.8%

Heartland Value Plus (HRVIX)

12-Month Return: +9.9%
Manager: Bradford A. Evans (since 2006), Adam J. Peck (since 2007)
Total assets: $1.1 billion
Load: None
Expenses:  1.21%
Minimum initial investment: $1,000

The Heartland Value Plus Fund’s returns have been ahead of the S&P 500 but just in line with the Morningstar Small Value category year to date and over the past year but its +5.12% total return over five years is well ahead of the modest losses experienced by the S&P 500 and the Morningstar Small Value category. The fund is highly accessible to small investors with a minimum initial investment of just $1,000. Heartland Value concentrates its investments in just 30 to 60 stocks with market caps between $250 million and $4 billion at the time of purchase. The firm’s philosophy is to seek companies that are undervalued relative to their intrinsic value based on factors such as book value, cash flow and earnings and that may have improving earnings trends or catalysts for value recognition. Heartland Value manager Bradford Evans trades actively but not frenetically. The fund has an annual portfolio turnover of 69%.

Top 5 positions include Patterson-UTI Energy (NASDAQ: PTEN) at 3.5%, Unit Corp. (NYSE: UNT) at 3.1%, Omnicare Inc. (NYSE: OCR) at 3.0%, Robbins & Myers Inc. (NYSE: RBN) at 2.9% and Chemed Corp. (NYSE: CHE) at 2.8%.

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