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. Today, we look at the Canadian Value Portfolio. In each case, the top 10 holdings will be presented.
TD said the emphasis here is on solid companies that are trading at a discount to the broader market in terms of the price-to-earnings and price-to-book ratios. To ensure quality, TD looked only at companies with sustainable competitive advantages, strong management, positive industry trends, solid balance sheets and a high return on capital.
Classic value investing focuses on shares of companies that are shunned by investors, but all the stocks on this list have rebounded sharply in the past 12 months to March 2. Teck Resources and Linamar Corp. lead with gains of 918 and 410 per cent, respectively. A three-year view better emphasizes the potential bargain status of many of these stocks. Manulife Financial is down about half on a cumulative basis over the past three years, while Sun Life Financial, CIBC, Suncor Energy and Power Corp. are down 21 to 41 per cent. Even Teck, a powerhouse in the past year, has a gain of just 0.2 per cent to show for the past three-year period.
From mid-1995 through the end of last year, the TD Waterhouse Value Portfolio made an annualized 11.8 per cent, compared with just under 9 per cent for the benchmark S&P/TSX composite index. The risk-adjusted returns, as measured through the Sharpe Ratio, beat the index as well. The value portfolio scored a 0.64, the index 0.4 (higher is better). It's worth noting that the blue-chip and dividend portfolios presented earlier this week had superior risk-adjusted returns over the long term. Still, the value portfolio can be said to have conservative qualities. For example, it has less exposure than the index to cyclical sectors (energy and technology) that tend to exhibit earnings momentum and higher P/Es.
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