We shift gears in response to an interesting article from Alex Dumortier of the Motley Fool who proposes an approach for finding growth stocks in a low growth environment. While we continue to look for dividend bearing stocks that have good long-term prospects and, hopefully, will get you rich slowly, there is nothing wrong with mixing in a few higher risk, higher potential stocks.
Dumortier takes three strategies and then links companies to them:
- Focus on emerging/ high-growth industries: In this case he highlights the hi-tech industry and pulls out Apple (AAPL) and LinkedIn (LNKD). Having lived in Silicon Valley from before LinkedIn was and from when the Mac was a plain white box, I am aware of these two companies. Apple is riding high at the moment but I worry that what has happened to the iPhone, (copied by others and it no longer has the dominant position it once did) will happen to the iPad. Come to think of it, wasn't that what happened to the Mac?
Focus on emerging superbrands -- from this Dumortier picks out Boston Beers' Sam Adams (SAM). I don't see SAM being a super brand and I think that some of the next super brands will come from outside the U.S.
Focus on emerging markets: Dumortier pulls out Rosetta Stone (RST), the best-known U.S. brand in language instruction. I scratch my head a little at that as I would have looked at Intel, McDonald's or other strong companies that have significant non-U.S. exposure.
We will compare this selection with our dividend bearing ETF portfolio which gives access to emerging markets but not specifically to emerging super-brands or hot individual stocks.
|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|
3 High-Growth Strategies for a Low-Growth Environment -- 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
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||0%||0%||22%||9%||78%||7%||59%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||5%||3%||37%||17%||125%||2%||12%|
|3 High-Growth Strategies for a Low-Growth Environment||27%|
This has set up the table and we will be able to track it going forward but it's pretty meaningless as LinkedIn only went public last year.
|Fund in this portfolio||Percentage|
|AAPL (Apple Inc)||37.66%|
|SAM (Boston Beer)||25.71%|
|RST (Rosetta Stone Inc.)||14.62%|
|LNKD (LinkedIn Corp)||22.01%|
It is not surprising that Apple dominates the holdings with their recent stellar runup so short term returns have to be viewed in that fashion.
Three Month Chart One Year Chart Three Year Chart Five Year Chart
I like the approach of looking for areas where there is high growth areas and to see if you can find good, strong companies in those segments. I am sorry to say that I have long-term angst about Apple. Its success has already been priced into its stock and I see Apple's products being copied and it being increasingly hard for the company to hold on to a long-term advantage. I am also dubious about the other two.
All that to say that I will put a watching brief on these four stocks and I will also scan for what I would consider better selections from within the same parameters.
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.