Value Line Funds Approach
We recognize that great mutual funds are the ones that have the ability to outperform, whether in bull or bear markets. To give our investment professionals the information edge they need, the Funds’ investment manager — EULAV Asset Management — supports its portfolio managers with advanced analytics that include FactSet, Bloomberg and Thomson One as well as the venerable Value Line research and Ranking Systems.
Proprietary Value Line research includes the predictive Ranking Systems for both Timeliness™ and Safety™. The Timeliness ranking system represents an “at-a-glance” forecast of the near-term (6-12 months) relative price movements for a far-reaching universe of U.S. stocks. These stocks are rated on a scale of 1(highest) to 5 (lowest).
Timeliness rankings are further refined by the dependable Safety and Technical rankings, which are designed to measure volatility and short-term statistical signals, respectively.
Along with our deep affinity for sophisticated analytics, we recognize that ours is a craft practiced by expertly trained professionals. Each of our Funds follows a disciplined investment process, while allowing our veteran portfolio managers to exercise their keen judgment within the scope of the investment objectives.
To gain a better understanding of the methodology behind the proprietary Value Line Ranking Systems, explore the sections below.
Value Line Timeliness Ranks
The Value Line Timeliness rank measures probable relative price performance of approximately 1,700 stocks during the next six to 12 months on an easy-to-understand scale from 1 (Highest) to 5 (Lowest). The components of the Timeliness Ranking System are the 10-year trend of relative earnings and prices, recent earnings and price changes, and earnings surprises. All data are actual and known. A computer program combines these elements into a forecast of the price change of each stock, relative to all of the approximately 1,700 stocks for the six to 12 months ahead.
| Rank | Quality | Stock qualities, as a group |
|---|---|---|
| 1 | Highest | Expected to be the best performers relative to the Value Line universe during the next six to 12 months (100 stocks) |
| 2 | Above Average | Expected to have better-than-average relative price performance (300 stocks) |
| 3 | Average | Expected to have relative price performance in line with the Value Line universe (approximately 900 stocks) |
| 4 | Below Average | Expected to have below-average relative price performance (approximately 300 stocks) |
| 5 | Lowest | Expected to have the poorest relative price performance (100 stocks) |
Changes in the Timeliness ranks can be caused by, but are not limited to:
- New earnings reports
- Changes in the price movement of one stock relative to the approximately 1,700 other stocks in the publication
- Shifts in the relative positions of other stocks
Value Line Safety Ranks
A second investment criterion is the safety rank assigned by Value Line to each of the approximately 1,700 stocks. This rank measures the total risk of a stock relative to the approximately 1,700 other stocks. It is derived from a stock's Price Stability rank and from the Financial Strength rating of a company. Safety ranks are also given on a scale from 1 (Safest) to 5 (Riskiest) as follows:
| Rank | Quality | Stock qualities, as a group |
|---|---|---|
| 1 | Highest | the safest, most stable, and least risky investments relative to the Value Line universe, which accounts for about 95% of the market capitalization of all stocks in the U.S. |
| 2 | Above Average | Are safer and less risky than most |
| 3 | Average | Are of average risk and safety |
| 4 | Below Average | Are riskier and less safe than most |
| 5 | Lowest | Are the riskiest and least safe |
Stocks with high Safety ranks are often associated with large, financially sound companies; these same companies also often have somewhat less-than-average growth prospects because their primary markets tend to be growing slowly or not at all. Stocks with low Safety ranks are often associated with companies that are smaller and/or have weaker-than-average finances; on the other hand, these smaller companies sometimes have above-average growth prospects because they start with a lower revenue and earnings base.
Value Line's Safety Rank Record
Safety becomes particularly important in periods of stock market downswings, when many investors want to try to limit their losses. We believe that if you think the market is headed lower, but prefer to maintain a fully invested position in stocks, concentrate on stocks ranked 1 or 2 for Safety. Also, at the same time, try to keep your portfolio ranked as high as possible for Timeliness.
The Penalty and Reward of Risk
A risky stock is one which has low Price Stability and whose price fluctuates widely around its own long-term trend. It may also be a stock of a company with a low Financial Strength rating. One may reasonably assume that the price of a risky stock will go up more than that of a safe stock in a generally strong market. Yet, if in the interim it went down more sharply and you had to sell at an inopportune time, you could suffer a heavier penalty for having bought the high-risk stock instead of the safer one.
