Marrying Value with Momentum

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BWLIX

So far, the approach has worked, helping the managers achieve their goal of beating the Russell 1000 Value index, a measure of undervalued large-company stocks. Although the no-load, low-minimum version of the fund has been around only since early 2012, an older share class of the fund, which was established in October 2003 and has the symbol BRLVX , returned an annualized 6.0% over the past five years. That outpaced the Russell index by an average of 2.1 percentage points per year. Plus, the fund was a tad less volatile than the index over that period (returns and related data are through May 3).

Recent performance has also been first-rate. Over the past year, the no-load share class returned 26.3%, topping the Russell index by 3.0 percentage points, Standard & Poor's 500-stock index by 7.6 points and the typical large-company value fund by 6.5 points. Montgomery attributes about half of the fund's recent performance to the firm's added momentum screen.

Montgomery is a self-described numbers and statistics geek. He founded Bridgeway Capital Management in 1993 on the principle that a quantitative approach to stock picking could take the emotion out of investing. The firm's data-driven approach defines everything from when to buy and sell a stock to how much of the fund's assets are invested in a given sector (the target, after copious amounts of study, is 5% to 7% of assets in each sector). Investing broadly across sectors helps reduce short-term volatility, says Montgomery. He and other members of his team pay particular attention to buy or sell decisions that will shift the weightings of a particular sector into double-digit percentages.

Montgomery and his cohorts, who are based in Houston, manage their own group of funds, all under the Bridgeway name. In early 2012, they partnered with American Beacon Advisors, a Fort Worth, Tex., firm with its own lineup of funds, to distribute Bridgeway Large Cap Value -- hence the double billing in the fund's name. Bridgeway is a subadviser of the fund and oversees the day-to-day operations.

At last report, the fund held 122 stocks and had more than one-fourth of its assets in financial firms. It's heavy, too, in energy names, such as ExxonMobil and ConocoPhillips, and in consumer-oriented stocks, such as Procter & Gamble and supermarket giant Kroger. Top holdings include energy giant Chevron, credit card company Discover Financial, and AT&T. With an annual turnover rate of 21%, the average stock remains in the portfolio for about five years -- nearly five times longer than the typical holding period of its large-cap value fund peers. The fund's annual expense ratio is 1.21%.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Insurance

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