Value investing: application of different strategies to equity mutual funds

ABSTRACT

In this paper we have analysed the performance of several value investing strategies for Eurozone equity mutual funds. We have executed an empirical study of what the application of this technique implies, with its different variants, to large-cap equity funds. This has allowed us to analyse different value investment strategies, and to see which are the most profitable. Since they are defined by parameters, or ratios, the next step in this study has been to analyse the sensitivity of investors’ profitability in accordance with how effective choosing mutual funds is based on certain ratios, or a possible combination of several of them. Our results support that an investment strategy combining value (undervalued stocks) and quality (high ROA) leads to success when investing in Eurozone equity mutual funds.

KEYWORDS:

• Mutual funds
• active management
• value investing
• performance

Acknowledgments

We acknowledge the funding of:1) the Galician Regional Government [ED431C 2020/18] co-funded by the European Regional Development Fund (ERDF/FEDER) within the period 2020-2023 and (2) the Ministry of Science, Innovation and Universities (MCIU), the Spanish State Research Agency (AEI) and European Regional Development Fund (RTI2018-100702-B-I00 MCIU/AEI/FEDER, UE).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Acronyms for Enterprise Value and Earnings Before Interest, Taxes, Depreciation and Amortisation.

Additional information

Funding

This work was supported by: (1) the Galician Regional Government [ED431C 2020/18] co-funded by the European Regional Development Fund (ERDF/FEDER) within the period 2020–2023 and (2) the Ministry of Science, Innovation and Universities (MCIU), the Spanish State Research Agency (AEI) and European Regional Development Fund (RTI2018-100702-B-I00 MCIU/AEI/FEDER, UE).