I’m going to have a look tomorrow, but how do you go about constructing such a thing. If you simply picked the top 10, then you might find you are restricted to a certain sector, so I would think this should be loosely based on an all world index fund.
I do like the principle, rather than ‘unloved’, essentially you are adding money where there is value.
I figure you’d be starting with typically dividend company’s? There is generally a rotation to more dividend based securities in times when inflation and interest rates rise too.
Read an interesting article on Unilever the other day, would this fit the bill?
constructing something like this would require us to define ‘unloved’ a bit more presicely, personally don’t like buying funds other than low costs ETFs but would be interesting in building and maintaining a couple of unloved stocks pies fore all the unloved sectors.
There are a couple options. The Morningstar article writes that it picks the most unloved stock from three different categories - defined as the fund with the most outflows if I understand correct.
Now we could mimic these funds, but that would rely on having to monitor its portfolio statements from time to time.
My other thought, was could it be repeated with Investment Trusts, hence the AIC link. That way we could set something up, regularly invest, and only need to review the choice of three every year or so. We shouldn’t need to look at the flows, but could use the discount/premium instead, and the AIC sector.
I tend to try and find Dividend Stocks on the Cheap really. Which are usually unloved when Growth Stocks are popular.
Buying when the Interest Rates are up defeats the purpose on getting Value in the Dividend Stocks.
National Grid is unloved due to the lack of Volatility but it seems to also have high debt and bot cover the Divs with profits so understandable why people don’t hold onto it.
The FTSE is probably unloved in comparison to the US, Hong Kong and German Stocks.
I think choosing stocks would be a bit more difficult. If you picked a low debt threshold, then that writes off most but doesn’t always give the right picture.
Lloyds for example has debt to assets is about 95%. Does that mean we write it off?
Free cash flow and available cash might be a shout. Something with a strong balance sheet, and a proven track record pre 2020?
I would say of my holdings ones some might class unloved/overlooked/undervalued are:
BP (my oil/old energy play) HSBC (my UK bank play, with asian lean) ULVR (just solid stock seemingly unloved) GSK (When this splits companies could be worth a lot more in coming years, in mean time about a 6% div on current price)
And in my portfolio they play this role, well sort of. So BP & HSBC are partk of my unloved/rebound value plays (along with TW) and ULVR and GSK are really 2 of my 5 core dividend plays but I feel both unloved right now.
Arguably the ones I list are unloved for good reasons, however I think ULVR is a great value play at this price, 3%+ dividend, still growing (small amount) dividend each year and has such a strong cash flow.
This could work.
I tend to look at Earned Vale / EVITDA as EV includes market capitalisation and debt. Not to say that it is the way to go though. Also note that I do not use it for financial companies.
I have also been looking at Cyclically Adjsted Price to Earnings Ratio (CAPE) to see which markets are “cheaper”, which I guess is also “unloved”. From the link below, some examples are Russia, Poland, Czech Repblic, Jordan, Oman, Colombia and Turkey. A bit “less cheap” we can find Austria, the UK and Spain.
I have not found a ETF for Austria, so I was thinking of looking into some of its stocks once they get added It is one of the most likely exchanges to be added this year. (See David’s post below)
In terms of the countries above, from the first batch there are ETFs and Stocks for Russia on T212. There are also iShares ETFs for Turkey and Poland.
I couldn’t find any for Austria and the Czech Republic which I think are currently probably more stable countries and hence would be more reasonable to invest into a Country ETF without knowing much… What are your thoughts?
I guess you could even combine “cheap country stock market” with “cheap fund” and look into investment companies investing in this at a discount. Examples:
On the AIC link you shared, it seems like the “cheapest” investment companies (largest discount to NAV) are property or leasing. Do you by any chance know why? Is it the pandemic?
EDIT:
One important thing to note is that the CAPE ratios in the link above are based on valuations at 30/10/2020 which is just before the large rally in early november.
The debt of financials are a bit harder to evaluate, I have not found a good way of evaluating themt apart from maybe Price to Earnings Ratio and Price to Book.
I don’t know of a way to really evaluate their “debt”. For example I have found that the EV/EBITDA ratio that I use for other stocks tends to be useless with financial companies.
Another way of targetting “unloved stocks” would be to buy an ETF tracking a “Value” or “Value weighted”.
For example on T212 we have the SPDR MSCI Europe Small Cap Value Weighted and SPDR MSCI USA Small Cap Value Weighted, both with a TER of 0.30%. Based on the idea that “unloved stocks” are those with low valuations (and high earnings compared to their price).
The index has the following methodology taken from an MSCI document linked below - a bit like a factsheet -, I seem to remember that MSCI had a more detailed document available but I have not been able to find it now.
So as you can see, it considers sales, book value, earnings and cash earnings.
Many of you are likely to know this better than me, but as a brief summary research from Fama and French is meant to have shown that different factors have different long-term returns, with “Small Cap” and “profitability” being one of the ones with the largest long-term outperformance, potentially because of the larger risks and less liquidity in the case of small caps as well as the long-term correlation between earnings and share price in the case of the profitability factor, which is then transformed into the “value” aspect.
There are quite a few articles online about this, however the first source where I came accross the research was on Ben Felix’s videos on Youtube (hopefully this is the correct video):
Important to consider that those are the products that he suggests to some of his clients, so he is likely to be significantly biased.
