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The digging was done and the fresh earth left beside the grave. The nearby coffin needed just a few nails to seal in its occupant. All was in readiness to dispose of the departed.

Many would be sad to see the condemned go. But after decades of making money, the poor thing fell on hard times a decade ago, during the great market correction, and then failed to recover with vigour. Some of those watching from the sidelines gossiped and speculated about the exact timing of its death while preening like vultures ready for the kill.

That was the state of affairs for value investing last spring when Tobias Carlisle came to town. But the young money manager from Australia figured that value investing wasn’t quite dead.

Instead of consigning value investing to the grave, he took the contrarian view and launched a new value-focused exchange traded fund. He called it the Acquirers Fund (ZIG) and listed it on the NYSE in May. The ETF follows a quantitative deep-value approach like those Mr. Carlisle detailed in a series of books.

I heartily recommend Mr. Carlisle’s Deep Value and Quantitative Value books. (He wrote the latter with Wesley Gray, who is also well worth following). The tomes are two of the best books on value investing from the past few years and are well suited to anyone interested in the topic. Deep Value takes a historical look at value investing while Quantitative Value examines it from the numerical point of view. Those looking for a primer on value investing can opt instead for Mr. Carlisle’s most recent book, The Acquirer’s Multiple.

(I know value investors tend to be penny-pinchers. But they can get a taste of what Mr. Carlisle has to offer by heading online to listen to his Acquirer’s Podcast for free. He uses it to interview interesting value investing experts.)

The value strategy used by the Acquirers Fund is heavily informed by the methods highlighted in Mr. Carlisle’s books. More specifically, he likes to look for bargain stocks by comparing a firm’s enterprise value – in simple terms, the market value of its equity plus net debt – with its operating income after depreciation. The ratio is a close cousin of the enterprise-value to earnings-before-interest-and-taxes ratio. You can think of both as fancier versions of the more familiar price-to-earnings ratio.

The ETF also incorporates traditional measures such as book value and free cash flow. Doing so allows for the evaluation of financial stocks, which would otherwise be excluded.

The process takes into consideration a bevy of additional factors such as balance-sheet strength and a firm’s ability – or at least its potential – to generate free cash flow. Statistical measures are added to the mix to gauge financial distress, fraud and earnings manipulation.

The ETF seeks out both good and bad stocks because it employs a 130-30 strategy. That is, 130 per cent of its capital is invested in long positions and 30 per cent is devoted to selling stocks short. The portfolio picks from a pool of large stocks with market capitalizations north of about US$2-billion. It goes long the 30 stocks with the best value characteristics. It goes short the 30 stocks with the worst characteristics. About 4.33 per cent of its capital is assigned to each stock it is long and 1 per cent to each stock it is short. The portfolio is rebalanced quarterly and comes with a net expense ratio of 0.94 per cent.

I like to examine value portfolios while searching for attractive stocks. I wasn’t disappointed with the Acquirers Fund’s portfolio because I own many of its stocks. (I don’t short stocks.)

A few of its holdings will be familiar to most Canadians. For instance, the ETF owns Manulife Financial Corp. (MFC) and Bank of Montreal (BMO), which are both personal holdings of mine. On the short side of the ledger, Canada Goose Holdings Inc. (GOOS) gets a starring role along with Tesla Inc. (TSLA) and Netflix Inc. (NFLX).

The Acquirers Fund is worth a second look because value stocks have started to show signs of life in recent weeks. The fund is up a whopping 8.3 per cent in the past month alone, according to With a bit of luck, value investing will be fully reanimated by Halloween and back to its winning ways.

Norman Rothery, PhD, CFA, is the founder of

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