When I launched my Conservative Growth/Balanced Model Portfolio at Invest By Model in July 2008, I shared the names and the philosophy behind it in a series of articles here on Seeking Alpha. If you are interested, you can visit the last one and follow the links to the complete discussion.
Today, like the last couple of years, I want to share all of the current holdings as well as some overall portfolio structure. The model has had reasonably good performance. I shared the returns and some commentary from the list of stocks I provided a year ago. The static portfolio essentially matched the S&P 500, but the overall model, which was adjusted several times during the year, beat its benchmark yet again. Since inception, it has returned an annualized 13.61% compared to 6.46% for the benchmark (described below). Here is the performance by year since inception:
- 2008: -5.76% (compared to -14.94% for the benchmark - this was from the launch in July and not for the full year)
- 2009: 24.23% (compared to 18.46% for the benchmark)
- 2010: 26.86% (compared to 12.19% for the benchmark)
- 2011: 5.15% (compared to 4.98% for the benchmark - a squeaker!)
- 2012: 13.74% (compared to 11.37% for the benchmark)
CG/B was my second model, following my Top 20, which is more aggressive. You can see those picks here. The basic goals are to create more income over time than the benchmark (60% S&P 500 and 40% Bar Cap Aggregate Bond), while balancing capital appreciation and preservation. Stocks range from 45-75% of the portfolio, while bonds range from 10-50%. Cash must be 5% or greater. The current portfolio is approximately 74% stocks, 16% cash and 10% bonds (all in mortgages, using the iShares Barclays Mortgage ETF (NYSEARCA:MBB)).
Here are the equity holdings:
- Applied Materials (NASDAQ:AMAT)
- AVX (NYSE:AVX)
- Becton Dickinson (NYSE:BDX)
- Cato (NYSE:CATO)
- Chevron (NYSE:CVX)
- Chico's FAS (NYSE:CHS)
- Cisco Systems (NASDAQ:CSCO)
- Cullen/Frost Bankers (NYSE:CFR)
- Franklin Resources (NYSE:BEN)
- Hormel Foods (NYSE:HRL)
- Intel (NASDAQ:INTC)
- Johnson & Johnson (NYSE:JNJ)
- Mattel (NASDAQ:MAT)
- Met-Pro (NYSE:MPR)
- Owens & Minor (NYSE:OMI)
- Pentair (NYSE:PNR)
- Walgreen (NYSE:WAG)
- Williams-Sonoma (NYSE:WSM)
The stocks in bold were on last year's list too, with CFR in italics because we didn't hold it for the full year, adding it back in Q4. Turnover here is much lower than in the Top 20 model portfolio, but we do trade around the core positions frequently (which helped this past year).
Risk is controlled in many ways (including position sizing), including valuation metrics, balance sheet and sector diversification. Let's take a look at some different valuation metrics (which are based on model weightings):
- Forward PE: 13.3 (similar to S&P 500)
- Dividend Yield: 2.9% (compared to 2.2% for S&P 500)
- P/TB: 2.8X
In terms of balance sheet metrics, the weighted average net debt to capital is just 8%. In fact half the stocks have net cash.
As far as sector diversification, there are no deviations from the S&P 500 weightings by more than 7%. We have 5-7% overweights in Technology, Consumer Discretionary and Health, and no underweights in excess of 5%.
As much as I favor Small-Cap these days, the weighted-average market cap is $43 billion (median $11.4 billion). MPR, at $142mm, and CATO, at $803mm, are the only Small-Caps.
A final word on dividends. All of the stocks pay dividends, with all but CSCO and CHS having a 5-year history. Almost all of those remaining sixteen have increased their dividends in each of the past five years (some for decades!). The average payout is similar to the S&P 500 near 30%. According to Baseline, the 5-year compound growth rate in dividends is 12%.
I remain bullish on stocks, as I have been since late 2009. I actually have a forecast of 1664 for the S&P 500, but I have been too optimistic for two years now and won't say that too loudly! I am not so sure that "conservative" stocks like the ones I shared here will be able to keep pace with a rallying market, as many stocks of this nature have benefited from a shift in investor preferences for dividend-payers. These 18 stocks rallied on average 13% in price over the past year, while on a weighted-basis they increased just 8% (the way I weight them in the model). Good luck to you in 2013!
Additional disclosure: Each of the stocks discussed is included in one or more model portfolios managed by the author at Invest By Model.