The IM-Capital Strength 20-Stock Universe Of The Russell 1000: Aug-2017 Update

|
Includes: ADP, AVY, BMY, CLX, DWDP, GD, GNTX, IPG, ITW, JNJ, KLAC, KMB, MMC, MMM, MO, PAYX, RTN, SON, SPY, SYY, VIG, VTV, VUG, VV, VYM, WSO
by: Georg Vrba

Summary

This Universe holds well capitalized companies with strong market positions, which pay good dividends, have price appreciation potential, and provide a degree of downside protection during bear markets.

The Universe is reconstituted weekly, and consists of 20 large-cap stocks with Capital Strength type characteristics from the Russell 1000 Index.

A comparison with Vanguard’s large-cap ETFs older than 10 years showed that for 1-year and longer periods the Universe would have produced higher returns than any of the Vanguard ETFs.

Here is the September Update

A full description of the simulated performance of a model holding all 20 stocks of the universe can be found here, and the updated performance summary is shown in the figure below.

The iM-Capital Strength 20-Stock Universe

The Capital Strength Index SM stock qualification criteria were modified to select stocks for the iM-Capital Strength Universe. The stocks come from the Russell 1000 Index and must:

  1. have a minimum three-month average daily dollar Trading Volume of $10-million;
  2. have a Cost of Capital less than the Return on Capital;
  3. after meeting criteria 1 and 2, be in the top 500 securities by Market Capitalization;
  4. have at least $1-billion in Cash or $1.1-billion of Short Term Investments;
  5. have a Long Term Debt to Market-Cap ratio less than 30%;
  6. have a Return on Equity greater than 15%;
  7. have a compound annual growth rate of Earnings per Share over the last 3 years greater than 2.5%;
  8. and have a Short Interest Ratio of 9 days or less.

The universe is then reduced to 20 stocks by sorting eligible companies according to the Sales percent change (recent Quarter vs Quarter 1 year ago), and Average Dividend Yield over the last 60 months.

The Universe is reconstituted weekly when new stocks are added to replace those which no longer meet the stock qualification criteria.

Portfolio holdings

Holdings updated on 8/20/2017
Ticker Name MktCap
$-Billion
SectorCode Yield
(%)
(ADP) Automatic Data Processing Inc. 46.5 TECH 2.18
(AVY) Avery Dennison Corp 8.2 MATERIALS 1.93
(BMY) Bristol-Myers Squibb Co 92.5 HEALTHCARE 2.76
(CLX) Clorox Co (The) 17.8 STAPLE 2.44
(DD) E. I. du Pont de Nemours and Co 70.4 MATERIALS 1.87
(GD) General Dynamics Corp 59.5 INDUSTRIAL 1.69
(GNTX) Gentex Corp 4.9 DISCRETIONARY 2.34
(IPG) Interpublic Group of Companies Inc. (The) 8.1 DISCRETIONARY 3.51
(ITW) Illinois Tool Works Inc. 46.7 INDUSTRIAL 2.30
(JNJ) Johnson & Johnson 356.1 HEALTHCARE 2.53
(KLAC) KLA-Tencor Corp 14.2 TECH 2.61
(KMB) Kimberly-Clark Corp 42.9 STAPLE 3.20
(MMC) Marsh & McLennan Companies Inc. 39.7 FINANCIAL 1.94
(MMM) 3M Co 121.5 INDUSTRIAL 2.31
(MO) Altria Group Inc 122.3 STAPLE 3.83
(PAYX) Paychex Inc. 19.8 TECH 3.64
(RTN) Raytheon Co. 51.3 INDUSTRIAL 1.80
(SON) Sonoco Products Co 4.8 MATERIALS 3.22
(SYY) Sysco Corp 27.1 STAPLE 2.58
(WSO) Watsco Inc. 5.2 INDUSTRIAL 3.44

Performance Comparison with Vanguard Large-Cap ETFs and SPY

The performance comparison is shown in the table below with the simulated returns of iM-Capital Strength 20-Stock Universe and those from the two related trading models shown at the top.

As of August 18, 2017 YTD
Return
1 year
Return
3 year
CAGR
5 year
CAGR
10 year
CAGR
iM-Capital Strength 20-Stock Universe 13.81% 20.56% 15.08% 17.84% 11.81%
iM-Tax Efficient Capital Strength Portfolio 21.17% 29.71% 25.63% 24.34% 22.02%
iM 6-Stock Capital Strength Portfolio 20.37% 33.27% 27.71% 27.91% 23.95%
Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) 10.44% 10.95% 9.51% 12.16% 7.86%
Vanguard High Dividend Yield ETF (NYSEARCA:VYM) 7.05% 11.65% 9.75% 13.20% 7.86%
Vanguard Growth ETF (NYSEARCA:VUG) 15.32% 15.53% 10.50% 14.00% 9.49%
Vanguard Large-Cap ETF (NYSEARCA:VV) 9.90% 13.62% 9.49% 13.64% 7.74%
Vanguard Value ETF (NYSEARCA:VTV) 4.77% 12.78% 8.77% 13.57% 6.57%
Average return of Vanguard funds 9.50% 12.91% 9.60% 13.31% 7.90%
SPDR S&P 500 ETF (NYSEARCA:SPY) 9.59% 13.41% 9.63% 13.58% 7.52%

Following the Universe

Here on SeekingAlpha, during the weekend after the 15th of a month, we will update this article with the updated iM-Capital Strength 20-Stock Universe.

At iMarketSignals we provide a weekly listing of the 20 stocks of the iM-Capital Strength 20-Stock Universe and their ranking. We aslo report the performance and trading signals for the two related trading models: iM 6-Stock Capital Strength Portfolio and iM-Tax Efficient Capital Strength Portfolio

Disclaimer

The backtest indicates good returns with drawdowns better than for the broader market, as one would expect from a system investing in Capital Strength type stocks. However, note that all performance results are hypothetical and the result of backtesting over the period 2000 to 2017. No claim is made about future performance.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.