Mutual Funds: Growth or Value?

March 4 -- For investors trying to decide whether to putmore money in value funds or growth funds, the current marketoffers little guidance, although recent returns show value mighthave a slight edge.

Over the last year, growth funds had a modest advantage, as theyoften do in strong markets. Since the start of 2004, however, valuefunds have outpaced them, according to research firm Lipper Inc.The largest difference can be see in the large-cap area, wherevalue funds have seen a return of 3.5 percent since Jan. 1, whilegrowth gained only 2.36 percent.

With the market's near-term outlook uncertain, most financialprofessionals recommend investors continue to hold a mix of bothstyles.

If you're looking to make small adjustments around theedges of your portfolio, however, it usually makes sense to do itin a way that runs counter to what's going on in the marketplace,said Emily Hall, senior mutual fund analysts with Morningstar Inc.

"You don't necessarily want to run up your growth exposureafter growth has had a huge run, like now, because you might begetting in at higher price levels," Hall said. "You don't want tochase past performance."

Understanding the Terms

For a novice investor, the words "value" and "growth" mighthold equal appeal, but they can have vastly different meanings onWall Street. Which strategy is better is a matter of debate, andpersonal preference.

Value investors are bargain-shoppers. They seek out underpricedcompanies with strong fundamentals that have temporarily fallen outof favor. Value funds tend to be less volatile because they focusmore on safety than growth, often investing in more maturecompanies that pay dividends.

When professional investors talk about growth stocks, they'reusually looking for companies with great potential that will givereturns in the form of future earnings appreciation.