We have reached the time of year that the all star games are occurring. Manchester United, one of the most storied teams, are playing the MLS All Stars, and the heavyweights of Major League Baseball recently squared off with one another. We picked up on Ilan Moscovitz' idea of putting together an All Star Dividend portfolio.
His criteria should please those looking for long term portfolios
- Companies with attractive dividend yields
- Make sure that those dividends are both sustainable and have potential for growth
- Diversification is key, particularly during uncertain times -- don't be too exposed to any one sector
- Lastly, it sure doesn't hurt when your portfolio enjoys the backing of other savvy investors with strong track records
Ilan restricted his choice to those that not only earned the maximum five-star rating from the Fool's CAPS investing community, but have also caught the eye of the "All-Stars" ranked in CAPS' top 20%.
|El Paso Pipeline Partners (EPB)||5.2%||Energy and materials|
|Waste Management (WM)||3.8%||Industrials|
|Procter & Gamble (PG)||3.3%||Consumer goods|
|Abbott Labs (ABT)||3.6%||Healthcare|
|New York Community Bancorp (NYB)||6.9%||Financials|
|Telefonica (TEF)||8.6%||Telecommunications and information Technology|
|Southern Co. (SO)||4.7%||Utilities|
Data from Motley Fool CAPS and Capital IQ, a division of Standard & Poor's.
This throws up a lot of familiar names for those in the field for long term dividend stocks. The balance and longevity of the picks make for a strong portfolio that is worth comparing. We will compare this with our reference ETF dividend portfolio which is blind in the sense that it invests in the whole market and focuses neither on saints nor sinners.
|Asset||Fund in this portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|Emerging Market||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|High Yield Bond||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- July 2011 All-Star Dividend Portfolio -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||13%||151%||12%||96%||11%||82%|
|July 2011 All-Star Dividend Portfolio||11%||104%||18%||66%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||14%||167%||6%||29%||5%||28%|
We are slightly hampered by EPB that only goes back to the end of 2007. However, there is enough here to draw some conclusions. As a part of a portfolio, you get reasonable returns compared to the ETF portfolio. Bear in mind that the ETF portfolios require monthly or quarterly intervention compared to the fire and forget approach of the All Star team. This means that returns could be increased or volatility reduced with greater intervention.
We see from the Sharpe Ratio and the graphs that the stock portfolio has higher volatility which is to be expected with a smaller number of stocks.
For the long term investor, this combination of stocks is worth considering. Given the relatively small number of stocks, the volatility is reasonable as are the returns. Knowing you have household names and some diversification is a good way of going forward.
We will continue to track the progress of this portfolio and see how it fares over the next few quarters.