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Number Cruncher

Winners in tempestuous times Add to ...

What are we looking for?

Given the heightened volatility in stock markets in recent months, the quest for places to hide has become a common preoccupation among investors. Yet not everyone wants to sacrifice the possibility of gains in the name of safety. Is there a way to get both – to find stocks that have been able to outperform the broader market, both when it has swung upward andtumbled downward?

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A volatile few months

Brockhouse Cooper global macro strategist Pierre Lapointe and financial economist Alex Bellefleur recently analyzed global stocks that were best able to beat the market, both in good times and bad, over the tempestuous past few months.

“While investing in low-beta sectors is useful to diversify risk, it doesn’t help to generate outperformance. Low-beta sectors will underperform in rising markets,” they said. They added that geographic diversification is also proving of little value in times of volatile North American stocks, as the correlation of global equity markets has been running around 90 per cent.

“To find winners in up and down markets, investors have to go down to the individual company level,” they concluded.

With that in mind, Mr. Lapointe and Mr. Bellefleur created a screen for stocks on the S&P Global 1200 index that have significantly outperformed the benchmark, on average, on days both with greater than 1-per-cent declines and with greater than 1-per-cent gains. They noted that in the three months ended Oct. 31, there had been 41 such days – nearly two-thirds of all trading days in the period. The screen identified companies whose average outperformance over the index was more than 0.1 per cent, both on the up days and on the down days.

What did we find?

The Brockhouse Cooper screen identified 12 stocks that met the average outperformance criteria both for the up days and the down days. The accompanying table lists them alphabetically.

Most of the stocks on the list have had strong years in general – suggesting that investors lean on current market darlings in volatile times. This may reflect a quest for quality when the going gets rough.

Consumer discretionary names also dominate the list – not exactly what we might have expected in uncertain markets. But again, this may relate more to the stories of the individual stocks than with the sector.

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