In our quest for long term stocks , we have been reviewing the approaches of Neil Hennessy, Portfolio Manager and Chief Investment Officer of The Hennessy Mutual Funds and has been repeatedly ranked among Baron's Top 100 Mutual Fund Managers,
We recently looked 11 dividend stocks from one of his strategies and today we look at another. Hennessy's Focus 30 Fund uses the following investing criteria.
- Market cap $1-10 Billion
- No ADRs
- Price/Sales of 1.5 or less
- Higher earnings than prior year
- Positive relative strength (price appreciation) over 3-6 month period
- Narrowed down to the 30 companies with the best relative strength over 12 month period in equal dollar amounts. Hold them for approximately 1 year, then rebalance
Based on this Rebecca Lipman came up with
1. Dr Pepper Snapple Group, Inc. (DPS): Soft Drinks.
2. ONEOK Inc. (OKE): Operates as a natural gas distributor primarily in the United States.
3. PetSmart, Inc. (PETM): Pet Stores in North America.
4. Energizer Holdings Inc. (ENR): Batteries, portable lighting, and personal care products worldwide.
5. Foot Locker, Inc. (FL): Athletic footwear and apparel.
6. The Valspar Corporation (VAL): Distributes coatings, paints, and related products worldwide.
7. AutoNation Inc. (AN): Automotive retailer in the United States.
8. Cosan Ltd. (CZZ): Production of sugar and ethanol products.
9. Patterson Companies Inc. (PDCO): dental, companion-pet veterinarian, and rehabilitation supply
10. RPM International Inc. (RPM): Specialty chemical products
11. WESCO International Inc. (WCC): Electrical, industrial and communications maintenance, repair, and operating,
12. Cabela's Inc. (CAB): Hunting, fishing, camping, and related outdoor merchandise.
13. Armstrong World Industries, Inc. (AWI): Flooring products and ceiling systems in the Americas, Europe, and the Pacific Rim.
14. Diebold, Incorporated (DBD): Self-service delivery and security systems and services
15. PriceSmart Inc. (PSMT): Operates warehouse clubs in the United States, Latin America, and the Caribbean.
16. Vectren Corporation (VVC): Provides energy delivery services
17. HSN, Inc. (HSNI): Markets and sells a range of third party and private label merchandise
18. AO Smith Corp. (AOS): Water heating equipment to the residential and commercial markets
19. Coinstar Inc. (CSTR): Provides automated retail in the US, Canada, Puerto Rico, the United Kingdom, and Ireland.
20. Darling International Inc. (DAR): Recycling, and recovery solutions to the food industry worldwide.
21. Snyder's-Lance, Inc. (LNCE): Provides various snack food products.
22. Thor Industries Inc. (THO): RV's and small and mid-size buses in the United States and Canada.
23. Mine Safety Appliances Co. (MSA): Health and safety products used by workers in the fire service,and others
24. West Pharmaceutical Services, Inc. (WST): Components and systems for injectable drug delivery and plastic packaging
25. Cash America International, Inc. (CSH): Provides specialty financial services to individuals primarily in the United States
26. Franklin Electric Co. Inc. (FELE): Groundwater and fuel pumping systems.
27. Elizabeth Arden, Inc. (RDEN): Fragrances, skin care, and cosmetic products
28. Scholastic Corporation (SCHL): Children's publishing, education, and media company primarily in the United States.
29. Schweitzer-Mauduit International Inc. (SWM): Paper and reconstituted tobacco products to the tobacco industry
30. Euronet Worldwide Inc. (EEFT): Provides electronic payment services.
Having 30 stocks means that you have diversification. I like the larger stocks with a mix of household names and other companies that are spread across multiple market sectors. I also like the idea of holding them for approximately a year and then reviewing who is doing well and who needs to be swapped out.
It will be interesting to measure them with our dividend bearing ETF portfolio:
|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|
- Neil Hennessy`s No-Nonsense Investing Strategies -- Total of $10K invested equally in each stock
- 11 Dividend Stocks That Meet Hedge Fund`s Requirement-- 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||YTD |
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||2%||7%||71%||14%||117%||8%||59%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||5%||2%||14%||13%||102%||2%||7%|
|11 Dividend Stocks That Meet Hedge Fund`s Requirement||9%||9%||31%||21%||87%|
|Neil Hennessy`s No-Nonsense Investing Strategies||10%||16%||56%||34%||137%|
In a previous article, we reviewed another of Neil Hennessy's investing strategies based on dividend bearing stocks and this is included for reference. We noted with the previous selection of eleven small cap companies, the volatility (Sharpe) numbers showed the volatility -- i.e. the risk you would be assuming for the returns. This selection with more, larger cap, stocks brings the volatility down and drives the returns up -- both very much appreciated.
Three Month Chart
One Year Chart
Three Year Chart
Five Year Chart
This is certainly an interesting approach. You can swap in the stocks of your choice that meet this criteria but this is is certainly worth considering as a blind filter to provide reasonable returns with acceptable volatility. Note, however, that this is not a dividend portfolio so that needs to be borne in mind.