10 February 2021 3:52:PM
Value Fund is an open-ended equity scheme that follows a value investment strategy. A value fund is a fund that follows a value investment strategy and aims to invest in stocks that, based on fundamental characteristics, are considered to be undervalued in price. Investing in value is also contrasted with investing in growth, which focuses on emerging firms with high growth prospects. A value fund follows a strategy focused on fundamental characteristics that focus on investing in stocks that are undervalued in price. Quality fund managers search for securities that are trading below their actual value for different reasons.
What is Value Fund?
Value funds and value investments are frequently synonymous with the strategies developed by Benjamin Graham and Warren Buffett, prominent value investors. Value managers select stocks based on the fundamental features associated with the intrinsic value of a stock for value funds. Value funds are usually used as allocations for long-term investments that have the ability to develop steadily over time. Quality fund investment is most also synonymous with due diligence and patience in investing.
These schemes seek to invest in stocks that are deemed to be undervalued by the broader market. The premise behind value investing is that the market has some inherent inefficiencies causing specific companies to trade at levels below their actual worth for various reasons & value category schemes endeavor to invest in companies that are available at less than intrinsic value.
We believe market volatility may continue given uncertainty related to COVID and Global Central Bank policies and the Value category can provide a good investment opportunity for a long-term investment horizon.
The rationale for following the Value fund investment approach is as below:
We are currently in a Developed World Central Bank Bull Market & Valuations are reasonable for long term investment.
- Value theme is expected to recover and perform well in the coming years. Certain segments provide opportunities with good valuations, healthy dividend yield, and earnings comfort.
- The valuations gap between Value and Growth is high. And Value strategy is available now at a discount to the broader market.
- During Q3 FY21, there has been a broad-based rally & going forward, going ahead broad-based reasonably valued companies should perform well.
- Easy liquidity, negative real rates, a weak US dollar, and a cyclical recovery in the world economy are likely to result in the return of inflation. Hence, companies with hard assets and leverage are likely to outperform as growth returns.
- Investors with long term investment horizon can benefit not only from earnings growth but also from rerating of multiples.
Recommended schemes in the Value fund category are as follows:
IDFC Sterling Value:
- The scheme follows a value investment strategy and is a mix of predominantly mid and small-cap opportunities.
- Portfolio consists of 15% exposure in large caps & 45% in midcaps & 38% in small caps.
- For relative value evaluation, the Enterprise Value (EV)/Sales ratio and Price/Book (P/B) are the key parameters looked at.
- The fund can also be looked at as a mix of Leaders/Challengers (leaders in Non-Nifty sectors or top challengers in Nifty 50 sectors) and Emerging Business opportunities.
- The fund follows a benchmark agnostic approach.
- Top 3 Sector allocation: others 24%, materials 18% & consumer discretionary 17%.
ICICI Pru Value Discovery Fund:
- The scheme seeks to identify stocks whose prices are low relative to their historic performance, earnings, book value & cash flow potential.
- It captures special situations and explores contra opportunities.
- The scheme is flexible in moving across market capitalizations to explore attractive investment opportunities
- It follows a benchmark agnostic sector allocation approach for investment.
- The portfolio consists of 77% exposure in large caps, 15% in midcaps & 2% in small caps
- Top 3 Sector allocation: Information technology 19%, healthcare 13% & consumer discretionary 12%.
UTI Value fund Opportunities:
- The scheme follows a barbell approach for investments i.e., buying what the market underestimates.
- It follows the Blend approach for Stock/Sector Selection, top-down for Sector selection & Bottom-up for Stock selection.
- Thus, the fund considers both sectoral and company-specific growth prospects and valuations in its portfolio construct.
- The scheme is agnostic to Market Cap & the preferred allocation is Large-cap biased but flexible to Mid/ Small caps too.
- The scheme is having 71% exposure in large caps, 19% in midcaps & 9% in small caps.
- Top 3 Sector allocation: Financials 30%, information technology 11% & others 12%.
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