Higher-risk stocks, with poor but incrementally improving fundamentals, outperformed by almost 2x that of the market Tuesday. The S&P 500 returned 0.81% excluding dividends, but "low-quality" in our unlevered model portfolio rose 1.77% on average, driven by the likes of Harley-Davidson Inc. (HOG) up 7.32%, MGM Mirage (MGM) up 6.91%, and Weatherford International Ltd. (WFT) up 5.71%. If Apple Inc.'s (AAPL) blow-out earnings reported after the market close, along with IBM (IBM) and Johnson & Johnson (JNJ) earlier reports are any indication, maybe we could see another positive day today.
While HOG is still in our monthly "low-quality" model portfolio, it left our weekly "low-quality" list as of April 16 due to positively trending analyst revisions. Interestingly, we noted in that report that stocks leaving the "low-quality" list due to positive analyst revisions could outperform significantly. If these trends continue, perhaps other stocks in this category could benefit, including Sony Corp (SNE), Brookfield Asset Management (BAM), Host Hotels & Resorts Inc. (HST), OSI Pharmaceuticals (OSI) and InterMune Inc. (ITMN).
Ascendere Long/Short Strategy Daily Update
'High-quality' stocks in the unlevered long portfolio rose 0.96% and 'low-quality' stocks in the unlevered short portfolio rose 1.77% for Tuesday, April 20, 2010. In comparison, the S&P 500 rose 0.81% Tuesday.
For the MTD, 'high-quality' stocks in the unlevered long portfolio are up 4.25%, ahead of the S&P 500 (ex dividends) at 3.23%. 'Low-quality' stocks in the unlevered short portfolio are up even more for the MTD at 5.04%.
Market Neutral Portfolio
As a result, the Market Neutral Model Portfolio declined -0.81% Tuesday and is now down -0.80% MTD.
Moderate Long/Short Portfolio
Given the 120/80 long/short weighting in the Moderate Long/Short Model Portfolio, it declined -0.26% overall for Tuesday. The Moderate portfolio performance is now up 1.05% MTD versus 3.23% for the S&P 500, excluding dividends.
The Moderate Long portfolio is up 5.12% for the month and the Moderate Short portfolio is down -3.96%.
Aggressive Long/Short Portfolio
Given the 200/0 long/short weighting in the Aggressive Long/Short Model Portfolio, it appreciated 1.93% overall for Tuesday. The Aggressive portfolio performance is now up 8.60% MTD versus 3.23% for the S&P 500, excluding dividends.
The Aggressive Long portfolio is up 8.60% for the month.
'High-Quality' Long Stocks Performance
The best daily performers in the long portfolio included Domtar Corporation (UFS) up 4.20%, Gannett Co., Inc. (GCI) up 3.48%, and Tim Hortons Inc. (THI) up 2.89%.
The worst daily performers in the long portfolio included Banco Santander-Chile (SAN) down -1.72%, Gilead Sciences Inc. (GILD) down -1.46%, and NBTY Inc. (NTY) down -0.65%.
'Low-Quality' Short Stocks Performance
The best daily performers in the short portfolio included Pepco Holdings, Inc. (POM) down -3.45%, Panasonic Corporation (PC) down -1.28%, and Nucor Corp. (NUE) down -0.59%.
The worst daily performers in the short portfolio included Harley-Davidson Inc. (HOG) up 7.32%, MGM Mirage (MGM) up 6.91%, and Weatherford International Ltd. (WFT) up 5.71%.
Our Long/Short indicator moved higher Tuesday and remains net long.
About the Model Portfolio
The Ascendere Long/Short Model Portfolio Strategies are "tactical tilt" portfolios that buy the highest quality stocks and sell the lowest quality stocks while maintaining a net long or net short position at all times. They are composed of about 80-100 stocks and rebalanced monthly.
Investors focusing on daily performance could find monitoring our model portfolio useful as a proxy for what is working in the market in general as viewed through the lens of "high-quality" versus "low-quality" stocks.
In addition, daily readers can be apprised to changes in our proprietary long/short indicator, which has been successful at capturing general trends in the market.