Skip to main content
number cruncher

What are we looking for?

A portfolio that's both aggressive and conservative.

Our friend Craig McGee, senior consultant at CPMS Morningstar Canada, gave us a peek inside his firm's Core 20 strategy, which is designed to give investors a way to participate in rising markets while providing a cushion when things turn rough.

How we did it

This strategy restricts itself to the largest 200 Canadian stocks covered by CPMS. From that group, it selects a 20-stock portfolio.

Half the portfolio is picked according to an aggressive, momentum-based strategy that emphasizes equities with strongly rising prices and earnings. The other half is chosen based on a defensive approach that favours dividend-paying companies with low earnings and price volatility, low valuations and growing earnings.

The 20 stocks currently in the portfolio are shown in the accompanying table, along with some of the ranking criteria. (EPS Stability refers to the volatility of earnings per share over CPMS's coverage period.)

To ensure adequate diversification, no more than five stocks from any single sector were allowed.

More about CPMS

CPMS, a division of Morningstar Canada, provides quantitative North American equity research and portfolio analysis to primarily institutional clients. It covers more than 700 Canadian and 2,200 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.

What did we find out?

The Core 20 has done well so far this year, producing a total return of 11.3 per cent versus 3.3 per cent for the TSX Total Return index.

The Core 20 has also been a good performer over longer periods. Its annualized return since inception on Dec. 31, 1985, is 15.2 per cent versus 8.3 per cent for the Total Return Index over the same period. These returns are net of a simulated 2 per cent annualized management fee.

As always, you should do your own research before buying any of the stocks listed here.