How to build your own Value Investing portfolio

A FUND that aims to deliver 12 per cent a year and does not charge any management fees

A week ago I was invited to a Value Investing Sharing Session by Aggregate Asset Management (AAM). They are a local boutique fund management company specializing in value investing. Their flagship fund, the Aggregate Value Fund, does not charge annual management fees and clients only pay performance fees for absolute returns.

I find this very refreshing because they really structure the fund to have 100% of their client interest in their mind. Unlike the many other funds that charges management or warp fee regardless of whether your investment make money or not. Worst, they typically will charge you a whopping 5% even before they start!  I personally do not have very good experience with financial advisers that recommend those funds. More often than not, they will not be interested in your investment after you sign on the dotted line. So when I first heard about this fund, I was eager to find out more.

Here are the key facts about their fund:

1. Does not have any sales charge or management fee.
   1. Only a one time $2K admin and legal fee.
2. Will only charge 20% of Profit based on High watermark.
   1. Meaning your investment must exceed your last high before any fees are paid.
3. Aim to achieve a net return of more than 10-12% per annum.
   1. Meaning you can double your investment in 5-7 years.
   2. They will achieve this by investing in undervalued listed securities in Asia.

But the “downside” is that the minimum investment amount required is S$150K. This is  requirement set by MAS.

So what can you do if you do not have $150 to invest? Well, they shared 3 ways an average investors can start:

1. Just investing in STI ETF
   1. The 10 year track record has a return of 9% per annum. Pretty good for for a “effort-free” investment strategy.
2. Start creating your own Permanent Portfolio
   1. By just dividing your investment into 4 assets class equally (25% in Stocks, 25% in Bonds, 25% in Gold, 25% in Cash) and balancing them once a year, you can get a return of 7% per annum with very little draw down effect.
3. Creating your own Value investing portfolio.
   1. This is advocated by AAM. By learning how to pick undervalued stocks, one can get as high as 10 to 12% yield per annum.

Here is their recommended criteria for value stock selection:

1. Stock that have <0.75 Price over NAV
2. Issued uninterrupted dividend for the past 5 years
3. For the past 5 years:
   1. Have positive earnings
   2. Generated positive cash flows
   3. Debt to equity ratio less than 50%
   4. PE <10

The process is to accumulate up to 50 or 100 such stock on a monthly or quarterly basis. Once any of the counter hit a profit of 50%, you can sell them. The obvious downside with this method is that you also need to have a significant investment amount to have a well diversified portfolio. But you can start small and slowly accumulate and not need to have a huge lump sum up front.

There you have it. A simple way on how you can start creating your own Value investing portfolio according to AAM.  Let me know what you think.