MERVALUE ETF

Value investing is an approach that looks for shares trading at prices below what their underlying business fundamentals suggest they are worth. The idea, associated historically with Benjamin Graham and Warren Buffett, is that markets sometimes misprice companies and that patient investors can benefit by buying those companies while they are overlooked or out of favour.

For MERVALUE specifically, the fund tracks the NGX Meristem Value Index, which screens Nigerian-listed companies using three core criteria: a low Price-to-Earnings (P/E) ratio (the share price is low relative to company profits), a low Price-to-Book (P/B) ratio (the company is trading near or below its net asset value), and a high Dividend Yield (a preference for mature companies that distribute profits to shareholders). The result is a basket of stocks that, at the time of selection, qualify as undervalued by these measures.

Value investing is not the same as low-risk investing. A company can be cheap because the market has identified real problems — deteriorating earnings, regulatory risk, or sector headwinds. The value approach assumes that, on average, the market overreacts to bad news and that buying a diversified basket of undervalued companies will outperform over time, but there are no guarantees.

It is also worth understanding that value and growth strategies tend to rotate in and out of favour. There have been long periods — including the decade following the 2008 global financial crisis — when growth significantly outperformed value. A key principle of value investing is mean reversion — the theory that undervalued stocks will eventually rise toward their intrinsic worth — but this can take years. Nigerian equity markets have their own cycles, and a time horizon of at least 3 to 5 years is generally recommended when investing in a value ETF like MERVALUE.