Heartland Advisors

Philosophy & Process

Heartland Advisors is steadfast in its belief that independent-minded, value investing is the most effective way to deliver superior long-term results.

A value approach is about conquering investment impulses, overcoming fears when others are panicked, and not giving into greed when things become too easy. Discipline is required as is a willingness to objectively question conventional wisdom. We embrace this philosophy and it serves as a core conviction for our investment process.

10 Principles of Value Investing™

Bottom-up, fundamental research is integral to Heartland’s security evaluation and selection. When analyzing companies, the Investment Team is guided by our proprietary, consistent, and time-tested 10 Principles of Value Investing™, the centerpiece of our investment process since the founding of the Firm.

The 10 Principles™ form the core of Heartland’s process for setting valuation targets for individual securities, determining their intrinsic worth, and driving all buy and sell decisions. Both quantitative and qualitative elements help us identify strengths and weaknesses from multiple perspectives.

PrincHeartland Advisors Value Investing Research Visitiple 1: Low Price to Earnings

Stocks with low price-to-earnings ratios historically have outperformed the overall market and provided investors with less downside risk than other equity investment strategies.

Principle 2: Low Price to Cash Flow

Strong cash flows give a company greater financial flexibility. When paired with capable management, it can be the foundation for stronger earnings and higher stock prices.

Principle 3: Low Price to Book Value

When a stock’s price is low in comparison to the company’s book value, sentiment about the company or the sector may be overly negative. Potential downside risk protection makes low price/book value stocks attractive.

Principle 4: Value of the Company

We seek to appraise the true intrinsic value of each company we evaluate. Our goal is to make prudent investments by purchasing stocks when they trade at a significant discount to our estimate of their true value.

Principle 5: Financial Soundness

We prefer companies with limited long-term debt. Low-debt companies have more flexibility during adverse business conditions because they can direct cash to operations rather than interest expenses.

Principle 6: Catalyst for Recognition

We consider consumer, political, environmental, and other impacts and trends to determine whether a company has a specific catalyst that we believe will cause its stock price to rise.

Principle 7: Capable Management and Insider Ownership

We meet with company management teams as part of our assessment of the strength and depth of leadership. We pair this evaluation with information about significant or increasing stock ownership among a company’s officers and directors. Insider ownership aligns leadership’s long-term interests with those of shareholders and can signal management’s personal confidence in the business.

Principle 8: Sound Business Strategy

We seek to understand a company’s business strategy by meeting with its management team. These meetings are designed to give us better insights into the leadership team’s conviction, confidence, outlook, and future plans for the organization.

Principle 9: Positive Earnings Dynamics

Earnings tend to drive stock prices. We prefer companies that recently have demonstrated improved earnings and that have upwardly trending estimates.

Principle 10: Positive Technical Analysis

A stock’s historic and more recent price movements can help determine future changes. We prefer stocks that are trading within a narrow price range following a previous down trend.

Finding ESG In the Small-Cap World

If a small company acts in a sustainable manner and no one is there to measure it, are its actions still worthwhile? 

Far from being a philosophical thought exercise, the question above highlights the challenge faced by investors looking to capitalize on opportunities in the small-cap space and who want their assets to make a positive impact in the world.

By some recent estimates, only about one-third of small companies report ESG data to rating agencies compared to 90% of the companies that make up the large-cap dominated S&P 500. Reasons for the failure to report can range from a lack of resources, to being unfamiliar with the process and importance of publishing data.

A common question is, how can a traditional, bottom-up stock picking firm add to the cause without changing or misrepresenting who they are?

This lack of reliable ESG information needs attention. Who better to work on it than asset managers speaking to under-followed or misunderstood companies?

During update calls with management teams we have taken the opportunity to inform them that there are various groups that monitor good corporate practices and that this is an area that is becoming increasingly important to investors. Several have responded to the conversations by noting that they will be more proactive in their communications.

For small companies to be analyzed on their ESG investing efforts requires timely, accurate information. We believe highlighting the need for improved reporting to management teams is a first step in improving the data and creating a better understanding of the ESG landscape when it comes to small businesses. 

While small companies have a long way to go in closing the ESG reporting and information gap compared to their larger counterparts, we believe heightened awareness is taking root, and more robust ESG data will be available in the coming quarters and years.

We hope our efforts will speed up the process.

Our Fiduciary Obligations

Heartland Advisors, Inc. has a fiduciary duty to put the best interests of each of its Clients first and to always act in an honest, and fair manner. We take this charge seriously because it aligns with our belief that the focus of everything we do as an investment manager begins and ends with the well-being of the clients who entrust us with their capital. 

Our culture of professional and personal integrity is reinforced through efforts such as annual compliance training as well as each employee committing to meet the standards detailed in the Firm’s Code of Business Conduct. 

Put simply, team members are expected to act with honesty, competence, and professionalism. They must adhere to the highest ethical standards and deal fairly with and act in the best interests of each of the clients of Heartland Advisors.


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©2024 Heartland Advisors | 790 N. Water Street, Suite 1200, Milwaukee, WI 53202 | Business Office: 414-347-7777 | Financial Professionals: 888-505-5180 | Individual Investors: 800-432-7856

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

There is no guarantee that a particular investment strategy will be successful.

ALPS Distributors, Inc., is not affiliated with Heartland Advisors.