What are we looking for?
Let's take a look at the companies Ron Meisels, the technical analyst for Phases and Cycles Inc., thinks are the most likely to outperform the S&P/TSX 60. Mr. Meisels writes a technical analysis feature for the Saturday Report on Business and is also the analyst behind the research provided to the Horizons AlphaPro Managed S&P/TSX 60 exchange traded fund, which is based on his TOP60 portfolio.
More about the TOP60
The stock selection approach is based on the relative performance of the groups in the S&P/TSX 60; he then tries to target the companies that are likely to outperform within those groups.
It is not a purely quantitative, numbers-driven approach, said Mr. Meisels, president of Phases and Cycles. “Here we have a couple of brains working, putting a lot of thought into the completion of the index,” he said.
At times the selections will reflect an overall enthusiasm based on the moving averages of the major indexes, but an assessment is also made as to whether a move by a particular company may be coming to an end as sentiment indicators change. The choices can also reflect cyclical trends in the market as to what are likely to lead or lag in a recovery.
Looking ahead to what he expects could turn out to be a quiet summer, two exchange traded funds (a total of 6 per cent of the portfolio) have been added to the portfolio as insurance. They are designed to rise in value if the S&P/TSX 60 or the energy sector falls. That avoids having to sell stocks or the risk of holding too much cash. The portfolio also holds 9.8 per cent in cash.
How has the TOP60 performed?
During the past five years, the TOP60 portfolio has outperformed, rising at a compound annual rate of 7.7 per cent, compared with a 6.1-per-cent annual gain for the S&P/TSX 60.
