Last year in February 2012, I wrote an article on a strategy I created to pick stocks by using the holdings of three ETFs based on popular investment themes: fundamentals, technicals and insider/analyst sentiment. This article is a review of the performance of the stock picks from the article I wrote last year, as well as my 2013 stock pick using the same strategy.
I built my screen by using the holdings of a fundamental ETF, the holdings of a technical ETF, and the holdings of an insider/analyst sentiment ETF. By doing this, the process "screened" companies that are fundamentally strong, technically strong, and have the support of insiders/analysts. The three ETFs I used were the First Trust Large Cap Core AlphaDEX (FEX), the PowerShares DWA Technical Leaders (PDP), and the Guggenheim Insider ETF (NFO).
First, I went to the holdings page on First Trust's website for FEX, and I copy and pasted the holdings into a spreadsheet. Next, I went to the holdings page on the PowerShares website for PDP and repeated the same process of copy and pasting the holdings into the spreadsheet. Finally, I went to the holding's page on Guggenhiem's website for NFO and did the same copy and paste as the two other ETF's. I then sorted the companies and found that eight companies were included in all three funds.
First Trust Large Cap Core AlphaDEX Description
From First Trust fund fact sheet: "The index employs the AlphaDEX stock selection methodology which uses fundamental growth and value factors to objectively select stocks from the S&P 500 Index which may generate positive alpha relative to traditional passive indices. The index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the index."
PowerShares DWA Technical Leaders Description
From PowerShares fund description page: "The Index includes approximately 100 U.S.-listed companies that demonstrate powerful relative strength characteristics. The Index is constructed pursuant to Dorsey Wright proprietary methodology, which takes into account, among other factors, the performance of each of the 3,000 largest U.S.-listed companies as compared to a benchmark index, and the relative performance of industry sectors and sub-sectors."
Guggenheim Insider ETF Description
From Guggenhiem's fund fact sheet: "The Index is designed to identify companies with potentially superior risk-return profiles as determined by Sabrient Systems LLC, the Fund's index provider. The objective of the Index is to actively represent a group of securities that are reflecting favorable corporate insider buying trends (determined via the public filings of such corporate insiders) and Wall Street analyst earnings estimate increases."
Using the dividendchannel.com DRIP calculator, I calculated the total return for all the picks from 2012 as well as the returns for the SPDR S&P 500 Trust ETF (SPY), as well as for the three ETFs I used to screen: FEX, PDP, and NFO. The returns in the table below are from a starting date of February 10th 2012, which was the date my article was published, until the end of 2012.
Dollar Tree Inc
Hormel Foods Corp
Whole Foods Market Inc
SPDR S&P 500
Guggenheim Insider Sentiment
PowerShares DWA Technical Leaders
First Trust Large Cap Core AlphaDEX
My Portfolio Average
The above table shows my strategy of using three different methodologies slightly outperformed the SPY this year. In addition, the portfolio had a higher return than a portfolio made up of the three ETFs making up my screen. The only ETF that my portfolio did not outperform was the PDP which is the ETF that screens for technically strong stocks.
2013 Strategy Pick
Below are the results of my screen using the same process as I used in my article last year, as described above. Surprisingly, after last year having eight companies that were in all three ETFs, this year only ONE stock was included in all three. The stock is listed below with a short business summary, as well as the P/E ratio and dividend yield from Yahoo Finance.
Whole Foods Market, Inc. (WFM)
"Whole Foods Market, Inc. owns and operates a chain of natural and organic foods supermarkets. The company offers produce, grocery, meat and poultry, seafood, bakery, prepared foods and catering, coffee and tea, nutritional supplements, and vitamins." Whole Foods Market has a P/E ratio of 36.2 and a dividend yield of 0.90% [Yahoo Finance]
I was happy that the portfolio outperformed the SPY, and also outperformed an average of the ETFs that made up my screen, but I had hoped the outperformance would be greater. At the end of 2013, I will provide an update on the performance of Whole Foods since it was the only stock that made it through my screen, as well as my picks for 2014.