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Overall Performance:

The Valuation 50® focuses on understanding a firm’s intrinsic value and the wealth creating strategy company managements pursue. We believe the Valuation 50® utilizes a superior valuation process to most other strategies that has been consistently reflected in its stellar performance over the past 18 years.

As you can see in the chart below, the Valuation 50® has outperformed the overall market and value index since its inception.

The Importance of Intrinsic Value:

While passive investing has experienced amazing growth over the past 40+ years, one aspect of it has never changed – it systematically overinvests in overvalued stocks and underinvests in undervalued stocks. That is not controversial, it is just simple math.

The chart below shows how understanding a firm’s intrinsic value provides a significant edge identifying stocks likely to beat the market.

The Valuation 50® strategy focuses on owning undervalued wealth creating companies.

All Weather Characteristics:

As you know, most value and growth strategies are cycle-dependent and underperform when their style is not in favor. For example, most value strategies underperform during growth markets, so advisors often struggle with how to best offset periods of underperformance.

Because our Economic Margin® Valuation methodology is uniquely different than traditional “value”, the Valuation 50® has shown its ability to transcend market cycles.

The Valuation 50 has provided more consistent and stable returns through different market cycles. The consistency in returns alleviates some of the burden placed on advisors of trying to time the market, and on their clients having to endure prolonged periods of underperformance in a strategy.

To further drive this point home, from 2011 to 2020, when value strategies lagged the market, Applied Finance’s Valuation 50® outperformed the S&P500.

Since 2021, while growth strategies have significantly underperformed the market, Applied Finance’s Valuation 50® has again beat the S&P500.

A review of the Morningstar Large Cap Mutual Fund database shows how extraordinary and difficult it is to deliver such “All-Weather” Performance:

From 2011-2020 (Growth Market), just 1 of the 692 large-cap value funds outperformed the S&P500.

Why?  Based on our research, we believe they tend to purchase low multiple stocks, without understanding if they are truly undervalued.

From 2020-2022 (Value Market), only 5 of the 701 large-cap growth funds outperformed the S&P500.

Why?  Based on our research, we believe they tend to buy high sales growth stocks, without understanding if that growth creates or destroys shareholder value.

Not a single large-cap fund was able to beat both the S&P500 and Russell 1000 Value during both of those time periods. *according to Morningstar Mutual Fund Database

The table below highlights the returns of the S&P500, Russell 1000 Value and the Valuation 50® during both periods.

The advantage of the Valuation 50® is that it is constructed to avoid the nasty growth/value cycles that leave investors frustrated so they don’t end up abandoning a well thought out financial plan. By beating the market over time, and avoiding these huge swings, the Valuation 50® helps advisors build stronger, more resilient, trusting relationships with their clients.

Ultimately, The Valuation 50 provides advisors and their clients exposure to a differentiated source of alpha.

Additional Resources:

• Valuation 50: Factsheet
• Select Mutual Fund: Factsheet (Valuation 50 strategy in Mutual Fund wrapper)

All Applied Finance Strategies can be viewed here.

To learn more about our funds/strategies, email us at info@appliedfinance.com.

Important Disclosures

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