The editors of SA kindly suggested the title of “Evolving Portfolio” in relation to a previous article initiating this particular methodology. I had intended to make this a regular weekly article, but the market turmoil starting 1 August diverted my attention. I am initiating the process once more.
As outlined in my first article, my methodology identifies the best performing portfolio on a given date, and the alpha of the portfolio is very close to linear. However, this does not last and the portfolio subsequently tends to index returns.
What does happen is that a new portfolio can be formed which continues to outperform as shown in the following graphs. The bifurcation is quite pronounced. The newer portfolio may retain some of the stocks of the previous portfolio, but adds upward movers and drops laggards. The upward movers are usually near neighbours on my risk/reward metric, so there is consistency in the methodology.
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The 26 August portfolio comprises the following:
Sturm Ruger | Defence | |
China Security | Business Support Services | |
Yamana Gold | Gold Mining | |
Advance America Cash | Consumer Finance | |
Konami Corp | Toys | |
Blyth Inc | Nondurable Household Products | |
China Sthn Airlines | Airlines | |
Nalco Holdings | Waste & Disposal Services | |
Buenaventura Mining | Gold Mining | |
Mueller Industries | Industrial Machinery | |
Kinetic Concepts | Medical Equipment | |
Silver Wheaton | Platinum & Precious Metals | |
Cabot O&G | O&G Exploration & Production | |
Barrick Gold Corp | Gold Mining | |
AutoNation Inv | Specialty Retailers |
My experience is that stocks at this end of the risk reward spectrum might have limited time for out performance, usually two to three weeks, hence our title. This is a high turnover strategy.
There is a “canary in the coal mine” quality about this analysis. If the market weakens, then these portfolios signal the event by weakening early. Evidence of this, which in my experience is a common characteristic, is evident in the 25 July portfolio above.
For reference, the 25 July portfolio was:
Genesco | Apparel Retailers | Buy Out | |||
Cohen & Steers | Asset Managers | Dividends | |||
Advance America | Consumer Finance | Stock Pick | |||
EQT Corp | Gas Distribution | Sector Play | |||
Bill Barrett Corp | O&G Exploration & Production | Sector/Small Cap | |||
Berry Petroleum | O&G Exploration & Production | Stock Pick | |||
Cabot Oil & Gas | O&G Exploration & Production | List | |||
CVR Energy | O&G Exploration & Production | List | |||
Western Refining | O&G Exploration & Production | Sector/stock Pick | |||
Complete Prod. | Oil Equipment & Services | List | |||
Halliburton | Oil Equipment & Services | List | |||
Helix Energy | Oil Equipment & Services | List | |||
Helmerich & Payne | Oil Equipment & Services | List | |||
Precision Drilling | Oil Equipment & Services | Sector | |||
Domino's Pizza | Restaurants & Bars | Sector | |||
American Vanguard | Specialty Chemicals | Sector | |||
Asbury Automotive | Specialty Retailers | List | |||
Disclaimer: The content in this document is provided as general information only and should not be taken as investment advice. The contents in this explanatory paper shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author. The author may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
