Welcome to our guide to the best deep-value investment funds. This article contains journalistic research about the deep value investing strategy, and information about a number of deep value investment funds.
The Best UK Deep Value Investment Funds
We will shortly be featuring the UK’s best deep value investment funds on this page, together with relevant information that may interest you as an investor.
A guide to deep value investing strategy
What is value investing?
Deep value investing is a derivative of the value investing strategy, so I’ll explain value investing first.
Read more: Beginners guide to value investing
In a nutshell, value investing is a fundamental investing approach. Value investors perform qualitative and quantitative research into a company to independently measure the underlying value of its shares.
It’s easy to then compare this valuation to the current market price of those shares. Those which are trading at a discount to their underlying value are potential trading opportunities.
If the apparent discount between the underlying value and the share price is greater than the investors’ target margin of safety, they will buy and hold the shares.
This school of thought assumes that financial markets do not accurately value companies, and can often undervalue good investment opportunities in the short term. Particularly companies which are weathering bad news, or which aren’t ‘on trend’.
A value investor is staking a bet that eventually the market will discover its error and place a higher value on the shares.
However, there is no automatic guarantee that a discount will disappear. As John Keynes famously stated: “The markets can remain irrational longer than you can remain solvent.“
Value investors are therefore prepared to hold the shares for the medium to long term, in the hope of generating alpha (a return superior to the market average) if the discount closes.
Value companies versus low quality companies
Before we take a look at deep value investing, I wanted to highlight the stark difference between a company with a falling share price, and a good value opportunity.
Good value companies could be:
- Showing good growth prospects or the potential to generate a good return to investors
- Operating in relatively steady trading conditions, but may have fallen out of favour with analysts, the press or market sentiment.
In other words, value companies are low value but are otherwise good investment opportunities.
Poor quality companies could be:
- Facing an existential threat from competition, regulation, or changing trends.
- Acting as poor stewards of the companies assets. Management may have poorly allocated resources, fraudulently misstated the results of the business, or have been otherwise fiscally irresponsible
- Burdened with high debts or currently in financial distress
The simple way to summarise this point is that many cheap shares are cheap for a reason.
This is precisely why the best deep value funds spend considerable resources researching companies before making an investment.
How does Deep Value investing differ from the wider strategy?
Deep value investing is exercising a greater restraint when applying the value investment strategy.
The phrase ‘Deep value’ communicates that the fund manager will only invest in a company if its discount exceeds a very high hurdle, example. a 40% discount.
The relative price differential between the value of expensive and cheap assets changes over time. The wider the differential, the higher the potential return is available when buying the most deeply undervalued securities on the market.
In certain market conditions, the price differential may be relatively low. In such circumstances, a deep value fund manager may conclude that there are no valid investment opportunities.
The level of research required to execute a deep value investment strategy is similar to vanilla value investing. Its risk profile in principle should also be similar.
Deep value equity indices
The following indices can help us monitor the success of the deep value investing strategy across the equity markets.
Each index represents a basket of publicly traded companies which meet the definition of ‘deep value’ under the methodology of the index provider.
These indices are relatively obscure compared to large-cap stock market indices such as the FTSE 100. The constituent companies which feature on deep value indexes may have a small market cap, lower trading volumes and a wider bid-ask spread, which may lead to higher investing costs.
List of the best deep value investment funds in the UK
We’ll soon be featuring great examples of the best UK deep value investment funds in this section. UK funds actively being considered for this shortlist include:
- UK Smaller Companies fund – Church House Investment Management
Please bookmark this page and return in a few months when we’ll be updating with deep value funds for you to browse.
US / Global deep value investment funds
I’ve researched several deep value investment funds and will provide a summary of these below.
Roundhill Acquirers Deep Value ETF
Ticker Symbol / Exchange: DEEP / NYSE
Fund Manager: Roundhill Investments
Fund Assets under Management (Feb 2021): $33m
Benchmark Index: Acquirers Deep Value Index (DEEPI) since Oct 2020.
Number of holdings (Feb 2021): 100
Top 5 holdings (Feb 2021):
- THE ODP CORP
- RENT A CTR INC NEW
- ATKORE INC
- ATLANTIC POWER CORP
- BLUELINX HLDGS INC
The Acquirers Fund ETF
Ticker Symbol / Exchange: ZIG / NYSE
Fund Manager: Tobias Carlisle, Acquirers Funds, LLC
Fund Assets under Management (Feb 2021): $26m
Benchmark Index: iShares Russell 3000 ETF
Top 5 holdings (Feb 2021):
- INTEL CORP
- RENEWABLE ENERGY GROUP INC
- LPL FINL HLDGS INC
- BK OF AMERICA CORP
- SCHWAB CHARLES CORP
Find out more information about this deep value investment fund in the Prospectus on the provider’s website.
Other notable international deep value funds include:
- Miller Opportunity Trust – Miller Value Partners, LLC