As I have done in each of the past four years, I am sharing our current holdings in the Top 20 Model Portfolio at Invest By Model, which is designed to beat the S&P 500 while remaining fully invested at all times. The model is actively managed, so this is just how we are positioned on day 1.
For some history, the 2009 picks averaged 59%, while the 2010 selections averaged 49% (all positive). 2011 was challenging, with the picks lagging the flat market and averaging a 7% decline. I recently shared a review of 2012's choices, which averaged 14.5%, just above the S&P 500. The model actually performed a bit better for the year, returning 17%, slightly less excluding dividends. This was a year in which repositioning during the year proved beneficial.
This year's list has a bit of overlap with last year's - those names are highlighted in bold. With that said, three of those names were not held all year (in italics), as we repurchased them late in the year after having previously sold them:
- AVX (AVX)
- Clean Harbors (CLH)
- Esterline (ESL)
- EZCORP (EZPW)
- Haynes International (HAYN)
- II-VI (IIVI)
- Intel (INTC)
- Luminex (LMNX)
- Liquidity Services (LQDT)
- Mako Surgical (MAKO)
- Masimo (MASI)
- Met-Pro (MPR)
- Preformed Line Products (PLPC)
- Raven Industries (RAVN)
- Super Micro Computer (SMCI)
- St. Jude Medical (STJ)
- Tech Data (TECD)
- Titan Machinery (TITN)
- Monotype Imaging (TYPE)
- Vanguard MSCI Emerging Markets (VWO)
As usual, my portfolio reflects a contrarian, mean-reversion oriented value-tilt, though it is bullish with a 1.13 beta and lots of exposure to smaller stocks and more cyclical economic sectors. This list of stocks was down 6% on average in 2012, so we are dealing with many stocks that are down substantially. The average stock is down 27% from its 52-week high (median -23%), with three stocks down more than 40% and just two within 10% of their 52-week highs. Here are some other characteristics:
- Forward PE: 14X median (this is higher than a year ago - more growth names), but 6 are below 10X
- P/TB: 5 of 20 less than 1.5X
- Net Debt to Capital: 12% (15 of 20 have net cash)
- Market Cap: $1.1 billion median, just 3> $10 billion
The model is rather diverse - no one will accuse me of being a "closet indexer". Our largest exposure remains Industrials at 32%, which is 22% higher than the S&P 500 exposure. Next is Technology at 33%, which is 14% higher than the S&P 500. Healthcare, at 22%, is 10% more than the index. The sectors that are low relative to the S&P 500 (all between 10.4% and 11.5% under the index) include Energy (0), Consumer Staples (0), Consumer Discretionary (0) and Financials (5%). I don't really manage sectors too much - truly "bottom up" stock selection. For comparison, our weightings last year were 36% Industrial, 26% Technology, 13% Financial and 9% Consumer Discretionary. Stocks are so correlated these days that sector allocation is not likely to highly influence returns.
I have shared my 20 names, but I haven't revealed the weightings, which vary from as little as 1.8% to as much as 7.7%. You can sign-up for a free trial to get the exact weightings. Readers are likely familiar with many of these stocks, as I have written about several over the past year. As always, I encourage any questions, so feel free to do so in the comments. Good luck to you in 2013!
Additional disclosure: All of these stocks are held in one or more model portfolios managed by the author