Heartland Value Plus Fund 1Q22 Portfolio Manager Commentary

Executive Summary

  • Investors turned cautious as the Federal Reserve began to raise interest rates in an attempt to tamp down inflation.
  • Concerns about a potentially overheating economy gave way to fears that the economy may soon stall as the yield curve flattened.
  • We continue to believe this is time to look for downside mitigation through well-managed and attractively priced companies with strong balance sheets that can withstand a down-trending market

Past performance is no guarantee of future results and investment returns and principal value of the Fund will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. Current performance may be higher or lower than the performance quoted. Call 800-432-7856 or visit heartlandadvisors.com for current month end performance.

First Quarter Market Discussion

The year got off to a volatile start, as the first quarter saw inflation running hotter than it has in nearly 40 years, investors frantically sorting out the winners and losers of rising prices, and the Federal Reserve attempting to play catch-up by raising short-term interest rates.

The first Federal rate hike since 2018 had an immediate effect — further flattening the yield curve, which investors have historically viewed as a sign of a potential economic slowdown ahead. By the end of the quarter, last year’s worry that the economy may be overheating was replaced by fear that the economy might soon stall, redoubling the market’s recent focus on traditional defensive sectors such as Utilities, which turned out to be among the few areas of the Russell 2000® Index that posted gains in the first quarter.

The markets acted in other expected ways. Sectors that tend to benefit from inflationary pressures, such as Energy, Materials, and Financials — which lean value — outperformed the broad market. At the same time, growth-leaning sectors that tend to suffer when inflation rises — or when rates are hiked to combat inflation — underperformed. This group included Information Technology, Consumer Discretionary, and Health Care, sectors that are generally regarded as long-duration equities, meaning the bulk of their cash flows are expected in the distant future, making them more vulnerable to the effects of high inflation.

All of this served to reinforce value’s advantage versus growth, a trend that began to take hold last year.

The Case for Defense

While value investors can take comfort in the market’s newfound respect for valuations, they can’t lose sight of the underlying message of the markets. We believe this is time to think defensively and to focus on price makers — in other words, companies with pricing power — not the price takers.

Long before the Federal Reserve raised short-term interest rates in March, the mood of the markets had already begun to sober. For example, as shown in the chart below, consumer confidence started to fade last spring, and that slide continued in the first quarter. That, combined with rising rates, could prove to be a meaningful drag on the economy in the coming quarter.

A Steady Economic Drag?

Heartland Advisors Value Investing Total Market Cap to GDP Chart

Source: Bloomberg L.P., Standard & Poor’s, weekly data from 3/1/2000 to 3/31/2022. The chart represents consumer optimism versus the Federal Funds Target Rate Index. All indices are unmanaged. It is not possible to invest directly in an index. Past performance does not guarantee future results.

We believe capital allocation policies are extremely important in this type of market, which is why we are focusing on companies with low leverage and holistic capital allocation policies focused on shareholder returns. This includes companies that are growing their dividends, actively buying back shares, and that are focused on internal growth rather than M&A activity. In our opinion, these types of disciplined companies will perform best during volatile markets like this.

Portfolio Activity

We’re also focused on businesses that have the potential to hold up better in a volatile, down-trending market with high inflation. For example, relative to the benchmark, we’ve been noticeably underweight Financials, reflecting growing investor concern about the flattening yield curve and its potential effect on credit risk considerations. However, we are looking for opportunities in banks in growth markets and regions. We also anticipate trickling into Consumer Discretionary, a sector that was directly affected by rising rate fears in the first quarter.

We’re also sticking with names that we feel are best positioned for a potentially rocky road ahead while trimming names that have significantly struggled with supply chain disruptions because we think that may persist for some time.

Outlook and Positioning

The headwinds pushing against this market aren’t likely to die down anytime soon. Inflation and supply chain issues that were once thought to be transitory have proven to be much stickier than expected, and the Federal Reserve has indicated that it plans to continue to raise rates throughout the year — and perhaps several more times. On the geo-political front, even if hostilities wind down quickly in Europe, we don’t believe that the economy will immediately improve.

We are looking for a sharp step down in inflation in order to feel true comfort in a recovering market. Until this happens, we remain defensive, while keeping an eye open for opportunities as investor exuberance wanes.

Thank you for your continued trust and confidence.

Please wait while we gather your results.

Portfolio Management Team

Bradford A. Evans

Senior Vice President and Portfolio Manager

Andrew J. Fleming

Vice President and Portfolio Manager

Fund Returns


Scroll over to view complete data

Since Inception (%)20-Year (%)15-Year (%)10-Year (%)5-Year (%)3-Year (%)1-Year (%)YTD* (%)QTD* (%)
Value Plus
Investor Class
Value Plus
Institutional Class
Russell 2000® Value9.928.556.9110.548.5712.733.32-2.40-2.40
*Not annualized

Source: FactSet Research Systems Inc., Russell®, and Heartland Advisors, Inc.

The inception date for the Value Plus Fund is 10/26/1993 for the investor class and 5/1/2008 for the institutional class.

Value Plus Fund Quick Links



Download PDF



View Commentary

Attribution & Contribution Reports

Sign In



View Holdings


Email Sign Up


©2022 Heartland Advisors | 790 N. Water Street, Suite 1200, Milwaukee, WI 53202 | Business Office: 414-347-7777 | Financial Professionals: 888-505-5180 | Individual Investors: 800-432-7856

In the prospectus dated 5/1/2022, the Gross Fund Operating Expenses for the investor and institutional class of the Value Plus Fund are 1.15% and 0.92%, respectively. The Advisor has voluntarily agreed to waive fees and/or reimburse expenses with respect to the institutional class, to the extent necessary to maintain the institutional class’ “Net Annual Operating Expenses” at a ratio not to exceed 0.99% of average daily net assets. This voluntary waiver/reimbursement may be discontinued at any time. Without such waivers and/or reimbursements, total returns may have been lower.

Past performance does not guarantee future results. Performance represents past performance; current returns may be lower or higher. Performance for institutional class shares prior to their initial offering is based on the performance of investor class shares. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. All returns reflect reinvested dividends and capital gains distributions, but do not reflect the deduction of taxes that an investor would pay on distributions or redemptions. Subject to certain exceptions, shares of a Fund redeemed or exchanged within 10 days of purchase are subject to a 2% redemption fee. Performance does not reflect this fee, which if deducted would reduce an individual's return. To obtain performance through the most recent month end, call 800-432-7856 or visit heartlandadvisors.com.

An investor should consider the Funds’ investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information may be found in the Funds' prospectus. To obtain a prospectus, please call 800-432-7856 or visit heartlandadvisors.com. Please read the prospectus carefully before investing.

The Value Plus Fund invests in small companies that are generally less liquid and more volatile than large companies. The Fund also invests in a smaller number of stocks (generally 40 to 70) than the average mutual fund. The performance of these holdings generally will increase the volatility of the Fund’s returns. There is no assurance that dividened paying stocks will mitigate volatility. 

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

The Value Plus Fund seeks long-term capital appreciation and modest current income.

The above individuals are registered representatives of ALPS Distributors, Inc.

The Heartland Funds are distributed by ALPS Distributors, Inc.

The statements and opinions expressed in this article are those of the presenter(s). Any discussion of investments and investment strategies represents the presenters’ views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. The specific securities discussed, which are intended to illustrate the advisor’s investment style, do not represent all of the securities purchased, sold, or recommended by the advisor for client accounts, and the reader should not assume that an investment in these securities was or would be profitable in the future. Certain security valuations and forward estimates are based on Heartland Advisors’ calculations. Any forecasts may not prove to be true. 

Economic predictions are based on estimates and are subject to change.

There is no guarantee that a particular investment strategy will be successful.

Sector and Industry classifications are sourced from GICS®.The Global Industry Classification Standard (GICS®) is the exclusive intellectual property of MSCI Inc. (MSCI) and S&P Global Market Intelligence (“S&P”).  Neither MSCI, S&P, their affiliates, nor any of their third party providers (“GICS Parties”) makes any representations or warranties, express or implied, with respect to GICS or the results to be obtained by the use thereof, and expressly disclaim all warranties, including warranties of accuracy, completeness, merchantability and fitness for a particular purpose.  The GICS Parties shall not have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of such damages.

Heartland Advisors defines market cap ranges by the following indices: micro-cap by the Russell Microcap®, small-cap by the Russell 2000®, mid-cap by the Russell Midcap®, large-cap by the Russell Top 200®.

Because of ongoing market volatility, performance may be subject to substantial short-term changes.

Dividends are not guaranteed and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

There is no assurance that dividend-paying stocks will mitigate volatility.

Growth and value investing each have unique risks and potential for rewards and may not be suitable for all investors. A growth investing strategy emphasizes capital appreciation and typically carries a higher risk of loss and potential reward than a value investing strategy; a value investing strategy emphasizes investments in companies believed to be undervalued.

CFA® is a registered trademark owned by the CFA Institute.

Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indices. Russell® is a trademark of the Frank Russell Investment Group.

Data sourced from FactSet: Copyright 2022 FactSet Research Systems Inc., FactSet Fundamentals. All rights reserved.

Consumer Sentiment Index is a telephone survey conducted by the University of Michigan Consumer Research Center, which phones 500 consumers to ask their opinion on personal finances and business conditions. Consumers are asked five questions concerning household financial conditions and their expectations for household financial conditions in one year; their expectations for business conditions in one year as well as expectations for the economy in five years, and their buying plans. This release provides an early indication of consumer expectations that are a leading indicator for the business cycle. The monthly survey has a moderate impact on the financial markets because if consumer confidence declines, then consumer spending is likely to weaken. The data is seasonally adjusted. With consumer spending making up two-thirds of gross domestic product, consumer behavior is closely watched. Cyclical Stocks cover Basic Materials, Capital Goods, Communications, Consumer Cyclical, Energy, Financial, Technology, and Transportation which tend to react to a variety of market conditions that can send them up or down and often relate to business cycles. Defensive Stocks include Health Care, Utilities, and Consumer Staples. These companies usually don’t suffer as much in a market downturn as they relate to basic needs. Inflation Risk is the possibility that the value of assets or income will decrease as inflation shrinks the purchasing power of a currency. Leverage is the amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged. Russell 2000® Index includes the 2000 firms from the Russell 3000® Index with the smallest market capitalizations. All indices are unmanaged. It is not possible to invest directly in an index. Volatility is a statistical measure of the dispersion of returns for a given security or market index which can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. Yield Curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. In a positive-sloping yield curve, short-term debt instruments have a lower yield than long-term debt instruments of the same credit quality. A negative, or inverted, yield curve occurs when short-term debt instruments have a higher yield than long-term debt instruments of the same credit quality.

Heartland’s investing glossary provides definitions for several terms used on this page.