The Impact of Intrinsic Value on the Investment Decision: An empirical study of Swedish equity funds with ethical restrictions

Abstract: This study examines the impact of intrinsic value in fund managers' decision making. The study focuses on restricting factors that limit or influence the fund manager's investment decisions of Swedish equity funds with ethical restrictions. The ethical profile is examined and we investigate how it affects the impact of intrinsic value in particular. We have performed a series of mini case-studies on seven funds. We have interviewed five fund managers, one equity analyst and two ethical analysts. We have also used the quarterly data of the funds to increase the validity of our study. Our conclusion is that there exist several restricting factors that limit the impact of intrinsic value in the investment decision. The restricting factors leads to compensating behavior, where the managers strive to cover exposure to index developments created through the restricting factors. This has been the rationale behind many investment decisions, rather than considerations of intrinsic value. The ethical profile in particular has led to varying degrees of compensating behavior depending on the range of companies excluded. Other important restricting factors are the 5-10-40 rule, levels of in-house expertise and the liquidity of the investment objects.