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June 14, 2022

Finding Value in Value Investing

If you’re buying a car, typically you research the market to see which make and model have the features you’re looking for. Once you’ve decided on a vehicle, the next step is to try and get the best price possible, so you can get good value for the money spent.

In essence, value investing is no different. Many great companies in the market seem poised to grow, but value investors are also extremely price aware. The stock of a strong company isn’t attractive to them if its price is higher than the value they assign to it (i.e., the stock’s intrinsic value).

“Value” is one of six factors at the core of an investment approach known as factor-based investing. This proven strategy combines aspects of active and passive investing, with the goal of enhancing returns or managing risk by concentrating on a specific investment factor.

Collectively, the following six factors generally comprise factor-based investing:

  1. Dividend yield. Looks for excess returns from stocks whose dividend yields are above average
  2. Low volatility. Targets securities with stable earnings and lower risk than the broader market
  3. Quality. Focuses on stable profits and cash flow, reasonable leverage or better relative credit quality
  4. Momentum. Seeks companies with improving fundamentals and a recent trend of outperformance
  5. Value. Identifies lower-cost securities that are undervalued in relation to their intrinsic value
  6. Size. Targets excess returns of smaller companies relative to ones with a larger market capitalization

Understanding the Value factor

A factor is a measurable characteristic of a group of stocks that, over time, exhibit certain risk-and-return features. Building factor-based investment strategies involves screening companies based on common characteristics that help explain a security’s risk-and-return behaviour.

In the case of the Value factor, value investing involves purchasing stocks trading at a relatively low valuation – often as a result of falling out of favour with investors – and then selling these stocks when their price rises to fair value or higher. Proponents of this strategy include legendary investors like Benjamin Graham and Warren Buffett.

Our Value ETFs

As with any factor-based strategy, investing according to the Value factor can be complex and technical. A convenient way to access value investing strategies is through our suite of value ETFs. They aim to capture excess returns from stocks trading at low prices relative to their fundamental value.

The three ETFs in our well-established suite are:

  • CI Morningstar Canada Value Index ETF (ticker symbol FXM)
  • CI Morningstar US Value Index ETF (ticker XXM for CAD-Hedged; XXM.B for Unhedged)
  • CI Morningstar International Value Index ETF (ticker VXM for CAD-Hedged; VXM.B for Unhedged)

The Morningstar approach

Our value ETFs seek to capitalize on the Value factor by replicating, to the extent possible, the Morningstar® Target Value Indices. These proprietary indices methodically rank stocks based on relative value measures, emphasizing companies with upward earnings estimate revisions. They target a specific universe of stocks that exhibit strong value characteristics.

Since any single metric cannot provide an accurate assessment of a stock’s relative attractiveness, each eligible stock is assigned a ranking based on the following five value-based metrics:

  1. Price/earnings
  2. Price/cash flow
  3. Price/book
  4. Price/sales
  5. Three-month earnings-per-share estimate revision

Constituents of Morningstar’s Target Value Indices are equally weighted and the indices automatically rebalance quarterly, providing targeted exposure to the Value factor. Equal weighting of securities and constraints on sector exposures are designed to help diversify risk, while the notable Value factor tilts mean the index deviates significantly from the market, creating the potential for relative outperformance.

According to Morningstar Direct’s data, the Value factor has performed well over the past two decades. The S&P 500 is an index of 500 large U.S. companies and is often considered a representation of the broader U.S. stock market. From January 1, 2002 to February 28, 2022, this index returned 9.0% on an annual basis. However, the corresponding Value factor generated an annual return of 12.2% over the same period, more than one-third higher than the benchmark index.

Value investing is a time-tested strategy practiced by some of the world’s most successful investors. If you’re considering adding portfolio exposure to the Value factor, our suite of Value ETFs may be an appropriate solution.



Commissions, management fees and expenses all may be associated with an investment in exchange-traded funds (ETFs). You will usually pay brokerage fees to your dealer if you purchase or sell units of an ETF on recognized Canadian exchanges. If the units are purchased or sold on these Canadian exchanges, investors may pay more than the current net asset value when buying units of the ETF and may receive less than the current net asset value when selling them. Please read the prospectus before investing. Important information about an exchange-traded fund is contained in its prospectus. The indicated rates of return are the historical annual compounded total returns net of fees and expenses payable by the fund (except for figures of one year or less, which are simple total returns) including changes in security value and reinvestment of all dividends/distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. ETFs are not guaranteed; their values change frequently, and past performance may not be repeated.


This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication.  Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. 


Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.