Craig McGee is a senior consultant at Morningstar Canada.
What we’re looking for
In the Canadian market, we’ve seen a tilt back toward value stocks so far this year. Investors may be betting that Canada is once again primed for growth after an extended period of relative underperformance. With that in mind, we can take a look at the CPMS Canadian Value model portfolio for some names that could benefit if this style shift continues.
The strategy holds up to 20 stocks in its simulated portfolio, with a maximum of five stocks in one industry group. The strategy emphasizes stocks with low price-earnings multiples based on reported and expected earnings, low price-to-cash-flow multiples based on reported cash flow and low price-to-book ratios. Importance is also placed on stocks with high earnings estimate revisions. Stocks are screened to ensure that they have minimum liquidity and analyst coverage and are among the largest 250 equities in the CPMS Canadian database. The 20 current holdings of the model are attached.
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
Year-to-date, the CPMS Canadian Value strategy is up 9.7 per cent (total return) while the S&P/TSX Composite Total Return Index is up 6.1 per cent. Over the past 10 years, the strategy has generated an annualized total return of 17.4 per cent versus 7.7 per cent for the index. Since inception on Dec. 31, 1985, the value strategy posted an annualized return of 16.3 per cent compared to 8.5 per cent for the index over the same period.
The CPMS Canadian Value model portfolio
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