Fundamental is a moderately low-beta, moderately low-turnover trading plan for stocks traded on major U.S. exchanges. It focuses on providing above-market returns over the longer term while keeping a variability of returns that is similar to the market's risk profile.
Information is as of the close on August 15, 2008.
Model Allocation
Based on beginning with a $100,000 portfolio at inception, these are the current weights and holdings. The initial target was a buy of 5% weights per position. See my previous post on this system. Sort is alpha order by ticker and weights are rounded to the tenth of a percent.
Accenture Ltd. (ACN) 5.0% weight
Apollo Group, Inc.(APOL) 5.5% weight
Aeropostale Inc (ARO) 5.2% weight
Boeing Co. (BA) 3.9% weight
CF Industries Holdin (CF) 5.2% weight
Dell Inc. (DELL) 5.1% weight
Graco Inc (GGG) 5.1% weight
Herbalife Ltd. (HLF) 5.9% weight
International Busine (IBM) 5.3% weight
J Crew Group Inc (JCG) 3.9% weight
Kellogg Co (K) 5.7% weight
Royal Kpn Nv S/Adr (KKPNY) 4.7% weight
Magellan Midstream Holdin (MGG) 4.4% weight
Microsoft Corporatio (MSFT) 5.5% weight
Southern Copper Corp (PCU) 3.4% weight
Polaris Industries I (PII) 5.7% weight
Partner Communications (PTNR) 6.0% weight
Terra Nitr Co Com Ut (TNH) 3.8% weight
Terra Inds Inc (TRA) 4.6% weight
Waters Corp. (WAT) 5.7% weight
Cash 0.3% weight
Returns
Based on beginning with a $100,000 portfolio at inception.
Equity: $95,875.92
Gain, Past 4 Weeks: 1.22%
Gain, Year to Date: -9.19%
Gain, Since Inception on 11/12/2007: -4.12%
Coincident with the May update, I made changes to the "earnings quality" screening process, with the goal of reducing turnover on a month-to-month basis. Turnover since has been four positions, two positions, and this month, six positions. Granted, it's not a lot of data points, but 20% turnover monthly is about what's expected from backtesting with the new filters.
The following stocks in the Fundamental portfolio went ex-dividend in the past four weeks: BA, CF, IBM, MGG, PII, and TNH.
Total dividends = $293.64 on the tracking portfolio. This amount has already been added to the returns shown above. Dividends paid will remain in cash until needed for a new purchase. Note, commissions are expensed at $10.00 per trade when accounting for returns.
Changes To Model Allocation
Fundamental screens for stocks that meet basic criteria, such as earnings and revenue growth, earnings quality, and debt-to-capital rations, then ranks them by ROE to hold the top 20. As a result of this regular four-week evaluation, the portfolio is making the following changes.
Remove the following stocks from the list:
Boeing Co. (BA) 3.9% weight
International Busine (IBM) 5.3% weight
Kellogg Co (K) 5.7% weight
Magellan Midstream Holdin (MGG) 4.4% weight
Southern Copper Corp (PCU) 3.4% weight
Terra Nitr Co Com Ut (TNH) 3.8% weight
Including the cash percentage of 0.3%, this allows approximately 26.8% of the portfolio to be allocated equally to the new purchases, with an unfortunately somewhat light target of 4.5% of equity each.
Add the following stocks to the list:
Alcon, Inc. (ACL)
Anheuser-Busch Cos. (BUD)
Block (H & R), Inc. (HRB)
Cal-Maine Foods, Inc (CALM)
Colgate-Palmolive Co (CL)
Corporate Executive (EXBD)
If this system were to be initiated today, the target allocation would be a buy for 5% weight holdings of the twenty stocks listed in Model Allocation, with the substitutions listed above.
Tracking
Shares of the stocks listed above will be sold, market at open on Monday. Based on portfolio total value and closing prices on August 15, 2008, enough shares of the replacements to comprise a 4.5% each allocation to the portfolio will be bought, market at open on Monday. Since the portfolio has no room for full allocations, I will round any fractional shares down in the share calculation for buys.
