Value managers are not dime a dozen

With the current market uncertainty likely to increase the popularity of value managers, investors are being warned that not all value approaches are the same.

According to the head of Tyndall Investment Management’s intrinsic value equities team, Bob Van Munster, there are different definitions of value resulting in different investment choices.

“In the current market, where investor behaviour is driven more by fear than greed, value managers generally prevail, and advisers should understand that some managers offer different ‘value’ approaches to others, and that their performance will be markedly different,” he said.

To explain, Van Munster divided value management into two broad styles — intrinsic and academic.

He said intrinsic value managers assessed stock potential by estimating the fundamental value of a security and then comparing it to the current market price; if the price is lower by a significant margin of safety, they buy the security.

“Intrinsic value managers tend to be much more conservative when valuing future growth options, generally preferring to value companies on the basis of what assets can earn in the immediate future rather than some distant point in the future,” he said.

In comparison, academic value managers assess stock value by using business statistics, such as historical earnings and price multiples, which is generally how value indexes are created, Van Munster said.

“The attraction of using this interpretation of value is that you can easily measure and categorise managers over time.”

In describing Tyndall’s value management style, Van Munster said it involved sorting through market noise and identifying companies whose current share price was lower than its long-term value.

“It is in volatile markets, such as the one we are in at present, that the best opportunities arise to invest for long-term gains,” he said.