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Value investing involves selecting undervalued stocks that have potential for long-term growth. A value stock fund is a mutual fund that uses this strategy, overseen by portfolio managers who invest assets based on buying and selling decisions. Professional managers have experience in specific industries and access to research teams to uncover value stocks. A value stock fund may be limited to certain market capitalizations.
Stocks represent a large umbrella in the financial markets where investment categories, sub-categories and styles are assigned. One such stock investing style is value investing, a strategy used successfully by billionaire tycoon Warren Buffett in the early 21st century. Put simply, value investing is all about selecting companies where the share price does not reflect what an investor believes is the company’s true value or an undervalued stock. A stock value fund includes a mutual fund that uses this style of investment.
An equity fund may be overseen by one or more portfolio managers. Investors put a certain amount of money into the fund and those assets are invested by the fund managers. The value of the fund grows or decreases based on the buying and selling decisions made by the professionals. In a value stock fund, these managers agree to look for opportunities that fit a value investment strategy—in other words, stocks that present a long-term buying opportunity for investors. Investors can learn about a fund’s investment style by reading that fund’s prospectus or filing with a financial regulatory agency.
The basis for a value investment is selecting stocks that are not popular with investors. Value investors select stocks because stock prices don’t reflect the true value of the company. A value investor believes that, eventually, the stock will trade at a higher value, and by buying the stock when it is undervalued, short-term or long-term profits can be made.
One of the criteria for value investing is understanding the sector in which undervalued stocks trade. This knowledge allows an investor to justify why investing in stocks is worth more than the stock price indicates, which is why investing in a stock value fund can help generate profits. Professional money managers often have experience in particular industries and, at the very least, have access to a research team to help uncover value stocks.
A stock value fund may be limited beyond value investing. Some mutual funds look for not just value stocks, but value stocks of a particular size or market capitalization, which is a measure of a company’s value based on the amount of shares available to trade and the stock price. An equity value fund could be tailored to include only small, mid or large cap value investments.
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