Jonas Elmerraji from thestreet.com suggests another filter through which to pick safe investments in these choppy times. His approach is to focus in on companies with big cash reserves -- the theory being that M&A activities can significantly boost investor value by picking up good companies, caught out by the current turn of events. In addition, these companies might start or increase dividend income.
This is an interesting approach and a good set of equities so we will pick up his list of companies with a big war chest and measure them against our benchmark portfolio of dividend focused ETFs.
The benchmark ETFs are:
|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,|
- 6 Cash-Rich Stocks to Buy Before 2012 -- 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,
(Click charts to enlarge)
Three Month ChartOne Year ChartThree Year ChartFive Year Chart
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe Retirement Income ETFs Tactical Asset Allocation Moderate 7% 80% 10% 84% 10% 71% 6 Cash-Rich Stocks to Buy Before 2012 38% 168% 27% 82% 23% 70% Retirement Income ETFs Strategic Asset Allocation Moderate 5% 42% 6% 23% 4% 14%
The returns from this selection of equities is very strong but this is largely on the back of the stunning performance of Apple. It's not clear whether Apple will be able to continue its stellar performance. Still, the returns and volatility are good and this is worth considering.
This is a portfolio to watch. It will be interesting to see how it performs and whether this is a good filter. For now, it is a little obscured by Apple. In a future article, I will replace Apple with another company with large cash reserves to see what the performance looks like.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.