While value investing has been around for a long time, it can sometimes be misapplied. 

The basic principles of value investing are fairly straightforward: determine the intrinsic value of a security and buy it at a discount to that determined value. In the early 90s, however, this concept evolved into the value factor, which was based on the idea that if one buys each company that trades at a low multiple of its book value, one can beat the market.

It's this idea that informs many of the exchange-traded funds on the market tracking value indices. Given their popularity, you may well have encountered them in client portfolios.

As this piece by Orbis Investments explains, though, many of the value ETFs on the market have a key fault in the rubric underpinning them.

If you read this, you will learn:

• • the history of value investing
  • why value indices may include stocks you wouldn't expect
  • the potential impact on investors' returns as a result of flaws in said indices