David Swensen, in his Unconventional Success book, recommends a six asset class portfolio plan explained in this Seeking Alpha article. Building on a base of six ETFs, the following portfolio adds two "Piotroski" stocks or stocks that pass a screen of having a High F-Score of eight (8) or higher. Just what is a "Piotroski" stock and what are the screens used to identify these stocks? The nine components are identified in this article, Reviewing Piotroski's F-Score.
Quantext Portfolio Planner Analysis: The following analysis is based on the assumption that the S&P 500 will grow at an annualized 7.0% over the next year. The projection for this combination of securities is nearly five percentage points above that anticipated for the S&P 500. We pay for that robust growth projection with a high projected standard deviation of 19%. However, the Return/Risk ratio is 0.62 or just a little higher than our goal of 0.60.
The Diversification Metric is above our goal of 40% and the Portfolio Autocorrelation is very low (-9.0%), a positive outcome. Examine the Historical Data and one sees how well this portfolio performed vs. the S&P 500 over the past five years.
(CRAI) CRA International, Inc. is a global consulting firm. The company offers economic, financial, and management consulting that applies analytic techniques and in-depth industry knowledge to complex problems. This stock is held in the Gauss Portfolio and currently has a perfect High F-Score of nine (9).
(GAI) Global-Tech Advanced Innovations Inc. is an investment holding company. Global-Tech, along with its subsidiaries, is a manufacturer of consumer electrical products, including floor care products and small household appliances, electronic and optical components, and is also involved in the assembly of cellular phones. The current High F-Score is eight (8).
Correlation Matrix: One reason for adding "Piotroski" stocks is to increase the diversification by lowering the correlation between investments. CRAI serves that purpose to a greater degree than GAI.
Two more stocks pass the Piotroski High F-Score, but neither have five-year records so I did not include them in the analysis.
Stocks that score a nine are added to the Gauss Portfolio and remain there so long as they hold on to a Piotroski score of seven or higher. When they drop below seven, the stock is sold. PFIN was one such stock and while it was held in the Gauss Portfolio the Internal Rate of Return (IRR) was 71.1%. The high value is exaggerated as the holding period was only a few months. CRAI is still in the Gauss, but is losing money. If GAI moves up to an F-Score of nine, it will be added to the portfolio.