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Value Investing
We’re value investors here at Intelligent Investor. Simply put this means that we buy stocks that we think are priced below our estimate of their value.
Separating price from value allows us to find businesses that are undervalued by the market, with a margin of safety to account for business specific risks. We aren’t afraid of complexity and digging deeper to get a research edge.
To ensure we are genuinely independent and contrarian, we don’t follow the market and the crowd. We don’t follow the index and are happy to ignore sectors if need be. A cheap stock is a cheap stock and its place in our portfolio is earned by value, not by sector.
We are happy to hold cash where there are no good opportunities – we don’t invest for the sake of being invested.
Similarly, we ignore the situations that are “hot” or “on trend” or have nice narratives – undervalued businesses are found where no one else is looking. Rather than trying to predict the future, we look at individual businesses and try to buy them for less than they are worth. We find that stocks that are a little unloved and ignored can provide the best value. A little ugliness or complexity is might be misunderstood by others or scare people off, but at Intelligent Investor we realise the opportunities that come with putting in the extra research and time.
We aim to find stocks that are undervalued in respect to their ability generate cash over the long term. We aim to hold a portfolio of good quality businesses mispriced by the market. They don’t have to have low PERs but they do have to be trading for less than they are worth.
The market is short term orientated and we can bring an edge when we are genuinely long term. We manage position sizes and identify correlated risks to maximise total portfolio return and minimise risk. We also take precautions such as having a flat investment team structure and a stringent peer review process so as not to risk strong personalities overriding investment decisions.
We are flexible about the approaches we use to find value, but typically it will involve taking advantage of the market’s short-term horizon: either buying a stock whose long-term prospects aren’t as bad as a gloomy consensus; or buying a stock where the prospects are even better than a rosy consensus.
Our recommendations are designed to help guide members’ investing decisions.
While everything we do is designed to maximise long-term investment returns and minimise losses, occasional losses are a normal part of investing. Please use these recommendations in conjunction with our risk ratings and suggested maximum portfolio weightings.
Recommendation types
| Type | Description |
|---|---|
| Buy | These are stocks that we think offer a substantial margin of safety in their price, and most members should consider adding them to their portfolios. |
| Speculative Buy | These stocks have the potential to produce higher returns, but that comes with higher risk – often much higher – so they're only suitable for investors that are comfortable with that. Typically these recommendations will be accompanied by low maximum recommended portfolio weightings. |
| Hold | These stocks offer some value (if there was no value we'd say Sell or Avoid), but there's not enough margin of safety for us to recommend them as a Buy. Most stocks will fall into this category. As they move closer to our Buy price, they could make reasonable investments for some; as they move closer to our Sell price, it might make sense to take some profit (particularly where you're breaching our recommended portfolio weighting). |
| Sell | These stocks offer little to no value, and we therefore think that members should consider selling and finding alternative investments – if necessary holding cash in the meantime. |
| Avoid | These are stocks that have particular risks or business issues, which mean we think we're unlikely to see a price at which we'd want to Buy or even Hold the stock. As a result, we'd recommend that you steer clear. |
| Under Review | This recommendation means a review is pending. It’s used sparingly usually following an important announcement that could impact the stock’s previous recommendation. |
| Ceased Coverage | When we cease coverage on a stock it could be for any number of reasons, but it ultimately comes down to the phrase: 'We see better opportunities elsewhere and don't expect this stock to become undervalued anytime soon'. |
Read The meaning of Buy, Hold, Sell for more information.
When you invest in an Active ETF you are investing in a portfolio of many different assets. The Active ETF is actively managed by a portfolio manager and investment team. You will receive distributions of the fund’s net income.
Active ETFs are actively managed by a portfolio manager and investment team to generate alpha and outperform a set benchmark. To invest in an Active ETF you will need to buy some units using your broker. You will also pay a management fee which is usually included in the unit price and in return for investing in the Active ETF you will receive distributions of the Active ETF's net income.
Investing in an Active ETF means that you will own units in the fund but not the underlying securities or derivatives themselves.
They provide access to a range of asset classes and investment strategies that non-institutional investors may not ordinarily have access to, for example international equities, fixed income securities and currency markets. By investing in an Active ETF/EQMF you can achieve a level of diversification that would normally be too difficult to realise investing in each asset individually. Active ETFs/EQMFs also have no minimum investment requirements which makes them more accessible. They benefit investors who prefer an active investing strategy and want their money to outperform the benchmark.
Furthermore, Active ETFs/EQMFs are a way of investing in an actively managed fund without the hassle of the paperwork required by traditional unlisted managed funds. With no waiting times and the ability to choose which price you invest in the fund, Active ETFs/EQMFs make investing more accessible. Investing more money is as simple as purchasing new units. Investments in Active ETFs/EQMFs are more liquid than traditional managed funds making them a more flexible choice.
A traditional unlisted managed fund often has minimum investment requirements that an Active ETF does not have. Managed funds are not listed on the exchange, and thus require much more paperwork to invest in the fund. Active ETFs, on the other hand, can be traded easily through a broker. Active ETFs can be traded like ordinary shares unlike managed funds.
The increased paperwork associated with traditional unlisted managed funds means that you may have to wait before your money gets invested. Active ETFs make investing more accessible by allowing you to invest quickly and hassle free with the help of your broker. This also means that investments in Active ETFs are more liquid than traditional unlisted managed funds.
Nothing, they are different names for the same investment vehicle. They are also sometimes known as listed managed funds, exchange quoted managed funds (EQMFs) or quoted managed funds.
An Active ETF is a managed fund traded on a stock exchange. They function like managed funds, but traded like shares which can be bought and sold during trading day on the stock exchange. Active ETFs are actively managed by fund managers to generate alpha and outperform relevant benchmarks.
Active ETFs will aim to beat the benchmark using a number of active investing strategies. They operate in a similar way to traditional managed funds but have the benefit of transparent, live intra-day pricing and market making ability which ensures liquidity
Investors invest in the Active ETF by using a stockbroker as if they were buying a share. Similarly, liquidating the investment follows a similar process to selling a share. This means that your Active ETF can be monitored and reported like any of your other shares.
Active ETFs are similar to the passively managed ETFs. Instead of using a passive investment strategy mimicking an index or other benchmark, Active ETFs have a fund manager who makes active decisions about what to invest in. Active ETFs aim to beat the benchmark or index whereas ETFs aim to follow the benchmark or index as closely as possible. Whilst Active ETFs will try to avoid falls in the benchmark, ETFs will go down when their benchmarks fall. As a result of an active investing strategy, Active ETFs will have higher fees to pay for the skill and experience of the fund manager.
Active ETFs and ETFs share similarities in that they are both listed on the exchange and investments in them are made through purchasing units via a broker.
