WHAT WE'RE LOOKING AT
Bob Gorman, chief portfolio strategist at TD Waterhouse, has supplied us with four model portfolios for this week's Cruncher series.
First up is the Canadian Blue Chip Portfolio. In each case, the Top 10 holdings will be presented.
The building of this portfolio starts with a search for companies that are leaders in their sectors.
The bias is toward large companies with strong balance sheets - more assets than liabilities, in simple terms - and solid management teams. All the stocks presented here pay dividends, but don't look for tip-top yields. TD has instead gone for stocks with a lower yield and a high return on equity, which suggests an emphasis on earnings growth. The portfolio has also been designed to be less volatile than the overall market.
In practical terms, that means having less exposure than the S&P/TSX 60 index to volatile sectors such as materials, and more exposure to defensive sectors like consumer staples and telecom services.
From July 31, 1995, through Dec. 31, 2009, the Canadian Blue Chip Portfolio has generated an annualized return of 12.6 per cent, compared with 8.8 per cent for the S&P/TSX 60 index (comprising big blue chips).
These strong returns have come along with a lower level of risk. The Sharpe Ratio, a measure of risk-adjusted returns, tells us the blue chip portfolio scored 0.75, while the index came in at 0.4 (higher is better).
Note that the portfolio contains several names that have lagged the overall market over the past 12 months.
Examples include Barrick Gold, Goldcorp, Rogers Communications and Shoppers Drug Mart. Top 12-month performers include Royal Bank of Canada, Canadian Natural Resources and Bank of Nova Scotia, all up between 70 and 90 per cent.
Income seekers, note that Scotiabank, Power Corp. and Rogers are the leaders in terms of dividend yield.