Below are five possible criteria that a fund may possess in order for us to mark it as Hidden Value.
1. Expose investors to long term positive trends e.g. urbanisation, favourable demographics, or emerging technology. This could include funds which sit in the eclectic Specialist sector, or perhaps an alternative energy fund.
2. Offer consistent performance while taking below average risk. This might apply in a theoretically lower risk sector, such as Absolute Return and also Property.
3. Focus on what is cheap taking a longer view. This might be certain types of funds, such as Value-style funds in the UK and Emerging Market equities in 2020.
4. Focus on what is cheap without good reason in the shorter term. This might mean it is well positioned to exploit a bounce after sharp market falls, such as Spring 2020.
5. Have a different approach to most peers in a way which adds something new to your portfolio. This is most likely to arise in lower risk sectors, such as bond funds.
We review the list at the beginning of every month, though it is unlikely there will be any major chopping and changing of the list.
You may notice that our Dynamic and Vintage ratings for growth funds don't tally with our income fund selections. Dynamic and Vintage ratings indicate growth potential, and do not give any indication of a fund's ability to provide income, this is the same for our Hidden Value selection below as well. To select funds for income, take a look at our Income Tool.
We have a shortlist of funds that meet our Hidden Value criteria, and as mentioned in an earlier question, this list won’t change too much. However, if a fund on our shortlist is 5-star for a certain month then we will label it on the site as 5-star rather than Hidden Value, as Gold Members will be able to see it currently has positive momentum characteristics.
If this fund then slips down to any other star rating in the month after, it will then be marked as Hidden Value and will appear on our Hidden Value List.
Hidden Value is less concerned with Dynamic Fund Ratings (or momentum), instead we only mark a fund as Hidden Value if it meets one of our criteria stated above. As you can see, none of the five criteria mention momentum. It is always important to check which criteria a specific fund has met in order to be marked as Hidden Value. For example, if it meets criteria number 1, it’s short term performance (whether it be 3 or 6 month) is not of great concern for that specific fund.