An investing strategy that can deliver gains in rising markets but not suffer too badly when the economic weather turns dark.
How we did it
Our friend Craig McGee, senior consultant at CPMS Morningstar Canada, highlighted the CPMS Canadian Core 20 strategy back in April and agreed to provide us with an update on how things are going.
The strategy picks 10 stocks from a conservative strategy and 10 from an aggressive strategy. In both cases, it makes its selections from among the largest 200 Canadian stocks covered by CPMS.
The conservative strategy focuses on dividend-paying, low volatility companies trading at low valuations but with growing earnings. The aggressive strategy focuses on stocks with “momentum” – rising share prices and growing earnings.
To ensure that no single industry is too dominant, the portfolio holds no more than five stocks from any one sector.
The accompanying list shows the 20 stocks currently in the portfolio, along with some of the ranking criteria.
EPS Stability is a measure of the volatility in earnings per share (EPS).
QEM, or quarterly earnings momentum, is the rate of change in EPS over the most recent four quarters, compared to the equivalent measure from a quarter earlier.
More about Morningstar
Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.
What we found
As of Dec. 17, the Core 20 is up 21.4 per cent vs. 9.2 per cent for the TSX Total Return Index since the start of the year.
The model’s annualized return since inception on Dec. 31, 1985 is 15.2 per cent vs. 8.3 per cent for the index over the same period.
These Core 20 returns are net of a simulated 2 per cent annualized management fee. No fee was deducted from the index return.
As always, remember that no strategy is guaranteed to work in all conditions. Do your own research before buying any of the stocks listed here.
CPMS Canadian Core 20 strategy
1-year beta used for EFN due to lack of 5-year price history. Grades relative to 735 stocks in the CPMS Canadian database (A = Low volatility; E = High Volatility). Source: Morningstar Canada