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Value shares and strategies

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
NotSure
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Value shares and strategies

#414238

Postby NotSure » May 22nd, 2021, 9:11 pm

Where best to post on this please? I'm feeling 'defensive' about some of my gains over the last decade, and feel that looking into 'good old value' may be worthwhile. Value shares often have decent yields, but I am interested in total return, not income, so neither HY forum is suitable. Macro topics perhaps?

1nvest
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Re: Value shares and strategies

#414368

Postby 1nvest » May 23rd, 2021, 11:52 am

Here's a couple of pointers as to possible Value Strategies

1.

Relative Valuation using gold as the base currency ... viewtopic.php?p=414130#p414130

2.

Sometimes the US relatively outperforms other markets, sometimes it falls behind, perhaps due to others catching up. Common practice might be to hold some of both and rebalance, but that tends to just broadly yield around similar overall rewards.

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If you record the running total returns from US and running total returns from others then you can compare the ongoing relative difference, BRK (US) / FT250 total return for instance (BRK running total return value divided by FT250 total return running value).

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Set some parameters for when valuations warrant rotating into 'better value', here I've used when BRK/FT250 is 40% (1.4 in the above) ahead then switch to FT250, when BRK / FT250 is 0.95 (-5% below) then rotate FT250 back into BRK (US stock).

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... and you have a value based strategy that can add overall alpha ...

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NotSure
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Re: Value shares and strategies

#414392

Postby NotSure » May 23rd, 2021, 1:21 pm

Thanks 1nvest, but I was more interested in equities, for the purposes of this thread. I am aware that the 'value' style of investing, once very popular, has almost disappeared - e.g. TLF has a growth board, albeit a very quiet once, but no value board. Things like PE and PEG, let alone PB seem to play little if any part in evaluating a share (outside the HY boards - but they are both strictly income only, not concerned with total return, at least discussion of total return in discouraged). Individual shares, ITs etc. can be discussed, but there is no forum for ‘value strategy’.

I'm guessing there are several reasons for the demise of the value style - information is now so easily available, and there are algorithms, including machine learning ('AI') that can digest huge amounts of data, so the chance of finding an 'overlooked gem' are remote. Plus all the gains since firstly ultralow IRs, and then QE became the norm, have been in growth. Turning one's nose up at a company's shares as their PE >> 20 has not been a good strategy of late. E.g. the ‘decision moose’ approach you mentioned on another thread performed well for decades, but has utterly failed since 2008 (the advent of global QE, coincidentally or otherwise).

However, while I am still a decade or so from retirement, my thoughts are beginning to turn to 'consolidation'. Plus my pension pot has had a very good run this last decade. It's far too early (IMHO) to consider switching to cash or near-cash, so I was wondering what folk here, many of whom have experienced multiple cycles, consider allocating a portion of funds towards companies with low PE/high yield would be any way defensive? Can a value approach reduce risk, while of course also reducing return? If so, it’s something I would be interested in discussing!

‘TLDR’: growth strategies have been effective for quite a while now, but with traditional ratios already pretty stretched, is anyone following a pure value approach, at least for a portion of their holdings?

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Re: Value shares and strategies

#414422

Postby shawsdale » May 23rd, 2021, 3:22 pm

I can identify with NotSure's post about 'value' investing.

However, it's arguable that far from being dead, since last November's vaccine announcements value has been in the ascendancy after a long period of underperformance, as marked by debates about the 'rotation' from growth to value.

Whilst noting that 'value' has many conceptual definitions and thus many ways of being put into investment practice, a good starting point might be to explore fund managers who define themselves as following a 'value' style, whether one wishes to invest in those funds, or sift through their portfolios for stock ideas.

Some examples of UK value managers:

- Schroder UK Recovery, Schroder Global Recovery and Schroder UK Income

- River and Mercantile's Hugh Sergeant whose funds include River and Mercantile UK Recovery and Global Recovery

- Jupiter UK Special Situations and Jupiter Global Value

- Man GLG Undervalued Assets and Man GLG Income

- Temple Bar investment trust (TMPL) which against the prevailing trend maintained a value mandate when appointing new fund managers last November. Said fund managers also run open-ended funds for RWC e.g. RWC UK Equity Income

- Fidelity Special Values (FSV)

Even if funds/trusts don't appeal, reading their factsheets, commentaries and reports is extremely valuable for discerning the market mood, and for possible individual company ideas.

Depending on which parts of the investing literature you read, Small Cap Value is often cited as having the best long-term returns (or at least was prior to 2016). Exponents of this approach in the UK include:

- Chelverton UK Dividend Trust (SDV)
- Aberforth Smaller Companies (ASL) and Aberforth Split Level Income (ASIT)

Given that SDV and ASIT, both highly geared, have seen their NAVs double in the last 12 months, it's possible that the value rotation has already happened.

There aren't that many global value strategies, particularly in the investment trust sphere, although Scottish Investment Trust (SCIN) might fall into that category and seems to be coming back to life in recent weeks as the stellar performers of recent years retreat for the moment.

AVI Global Trust (AGT) has a distinctive approach to value: seeking out holding companies trading at a significant discount to their estimate of underlying value.
AVI also operates AVI Japan Opportunity (AJOT) which together with another investment trust Nippon Active Value (NAVF) sees cash-laden Japanese companies as a fertile ground for special situations with much value waiting to be unlocked.

There are doubtless many other value strategies I've overlooked in different geographical regions, let alone ETFs.

I don't run all my portfolio in a value style. As recent years have demonstrated, value tends to have bursts of strong performance followed by prolonged weakness. I wouldn't want all my portfolio placed on just a single stylistic roller-coaster. However, many of the collective investment vehicles I hold are in the value camp (SDV being my largest position).
To disclose, of those mentioned above as well as SDV, I hold ASIT, AGT and Man GLG Income.

In terms of finding individual value shares: a few years ago when I started my investment-driven journey to early retirement high dividend yield was the starting point for my research, coupled with a quest for value-realising catalysts on the near-term horizon of the companies concerned. That drew me to Polar Capital (POLR) and Caledonia Mining (CMCL).

Constant vigilance of the daily stock exchange RNS announcements for special situations can yield possible bargains. For example, one such scan a few months ago pointed to a tiny UK company Coral Products (CRU) undertaking a radical restructuring which for a time led to its market cap being somewhat below a conservative estimate of intrinsic value, allowing for a significant cash pile.

I hope the above is of some use to the original poster.
I agree that a general value board or thread could be a useful addition to this site.

NotSure
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Re: Value shares and strategies

#414477

Postby NotSure » May 23rd, 2021, 8:36 pm

shawsdale wrote:I hope the above is of some use to the original poster.
I agree that a general value board or thread could be a useful addition to this site.


Thank you shawsdale, your post is of much interest to me. You've given me enough info to keep me going for a while. I am more interested in ITs/funds/ETFs etc. than individual company shares, so all very helpful.

I agree that 'all-in' value is likely not a good strategy, and if you believe the 'pundits' an amount of rotation has already occured. I'm naturally inclined towards value/yield, but have managed to keep these urges in check for the last decade. I've no idea how this Covid triggered round of monetary policy will proceed and its implications, but the usual trackers have become very tilted towards growth stocks, so I wonder if a bit of 'diversification' into more 'value' type stocks may be prudent.

A value strategies board would be great, but maybe there is not enough interest. Speaking for myself, I'd have plenty of questions, but not so many answers :)

One fund I do hold, and has done fine in the few months I've owned it, is the Vanguard UK Equity Income Fund (acc.). A weighted PE ratio of <15, and a yield of over 4%. The portfolio reads like a typical HYP, but for the sums I am currently talking, far cheaper to set up. It does have a very high turnover though, presumably driven by the index it tracks.

tjh290633
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Re: Value shares and strategies

#414492

Postby tjh290633 » May 23rd, 2021, 11:11 pm

NotSure wrote:I am more interested in ITs/funds/ETFs etc. than individual company shares, so all very helpful.

I agree that 'all-in' value is likely not a good strategy, and if you believe the 'pundits' an amount of rotation has already occured. I'm naturally inclined towards value/yield, but have managed to keep these urges in check for the last decade. I've no idea how this Covid triggered round of monetary policy will proceed and its implications, but the usual trackers have become very tilted towards growth stocks, so I wonder if a bit of 'diversification' into more 'value' type stocks may be prudent.

A value strategies board would be great, but maybe there is not enough interest. Speaking for myself, I'd have plenty of questions, but not so many answers :)

One fund I do hold, and has done fine in the few months I've owned it, is the Vanguard UK Equity Income Fund (acc.). A weighted PE ratio of <15, and a yield of over 4%. The portfolio reads like a typical HYP, but for the sums I am currently talking, far cheaper to set up. It does have a very high turnover though, presumably driven by the index it tracks.

If you are interested in Funds, rather than shares per se, then you might like to look at a small number of funds, some aimed at total return and some aimed at income provision, but reinvesting the income.

The fortunes of such funds may veer from one side to the other, with the income-oriented funds outperforming the total return "Vaue" funds for a while, then the reverse being the case. For a long time the income route gace better results, as you can tell by comparing the TR versions of the FTSE350 HY (HIX) and the FTSE350 LY (LIX) which track Higher Yield shares and Lower Yield shares respectively. Both started on the same day with the same value. You can find the latest values by Googling "World markets at a glance" and downloading the PDF file from the most recent edition of the FT.

The comparative values are:

Index   Ordinary   Total Return
HIX 3236.00 6908.37
LIX 4540.66 5424.33


So you can see that, despite the capital value of the Lower Yield Index being higher, the situation is reversed for the Higher Yield Index. That is since formation. In recent years, the relationship has been the other way round, although more recently the situation seems to have reverted to the old relationship. I believe that there are historical figures available for both indices, in normal and TR versions, so you might like to do some research on their relationship.

TJH

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Re: Value shares and strategies

#414493

Postby mc2fool » May 23rd, 2021, 11:24 pm

NotSure wrote:I am more interested in ITs/funds/ETFs etc. than individual company shares

I take it you are aware of the iShares Value Factor ETFs? There's World, Europe, USA and EM ones, with Acc/Dist and USD/EUR/GBP classes.

https://www.ishares.com/uk/individual/e ... ductSearch

torata
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Re: Value shares and strategies

#414553

Postby torata » May 24th, 2021, 11:15 am

NotSure wrote:I am more interested in ITs/funds/ETFs etc. than individual company shares



In addition to Mc2fool's suggestion, there are also x-tracker versions, which I switched into when Vanguard closed down their factor ETFs.
https://etf.dws.com/en-gb/IE00BL25JM42-msci-world-value-ucits-etf-1c/

I actually have both the value and momentum versions with the intention of rebalancing between them if they get out of kilter. (Although there was a fairly recent article in the FT, I think, that said that with the recent resurgence in value stocks, they may end up in both value and momentum indexes)

torata

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Re: Value shares and strategies

#414746

Postby NotSure » May 24th, 2021, 8:11 pm

Big thanks to all have responded to my request! Many suggestions that are exactly what I am looking for, in particular the 'ready made balanced' funds, but also the pure value plays. I had no idea about the detailed focus of many these funds - just scanning tables of yield, I would have missed a lot of these, and my research going forward will be far more efficient.


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