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A diversified portfolio for a bull market that's long in the tooth

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients. mike@mikebowmangroup.com

What are we looking for?

Trying to predict a correction is impossible, but with the markets getting a bit long in the tooth, today we look at a portfolio that could do well no matter what happens. My colleague Rob Belanger and I look at stocks that may outperform the indexes when they advance – and outperform the indexes when they decline.

The screen

We started with Canadian companies greater than $10-billion in market capitalization.

The five-year bull beta and five-year bear beta are measures of the sensitivity of a stock's return relative to the positive or negative changes in the S&P/TSX composite index. How did the share price perform in relation to the movements of the benchmark? An examination of betas shows whether the negative or positive periods of stock performance are reflected by the same negative or positive periods in the benchmark. For our screen, these companies had to have a five-year bull beta greater than the five-year bear beta. The index itself has a beta of one.

The "drawdown" – the final column in our table – is a measure that determines an investment's financial risk: Once a new stock price high is reached, the percentage change from that high to the lowest low in the past year is the drawdown, and we are looking for a low number.

What did we find?

A well-diversified portfolio that showed an average gain of 1.44 per cent over the past five years when the TSX rose 1 per cent, and fell 0.86 per cent when the TSX fell 1 per cent.

Barrick Gold is one of the world's largest gold producers, and over the past five years it rose 0.86 per cent when the TSX gained 1 per cent. It is the only company on our screen that actually gained when the TSX declined 1 per cent as shown by the negative number in the five-year bear beta column. Goldcorp only fell 0.06 per cent when the TSX dipped 1 per cent, yet along with Teck Resources, both these gold companies had the highest drawdown.

One of the world's leading copper producers, First Quantum, rose 3.48 per cent when the TSX rose 1 per cent, yet fell 2.56 per cent when the TSX dipped only 1 per cent.

One company that stands out is Brookfield Asset Management, which focuses on managing property, renewable power, infrastructure and private equity. The stock rose 1.63 per cent when the TSX gained 1 per cent and fell 0.58 per cent when the TSX dipped 1 per cent. It also has the third-lowest drawdown on our screen.

Investors should contact an investment professional or conduct further research before buying any of the companies listed here.

Stocks that have held up in bull, bear markets

CompanyTickerMarket cap ($ bil.)Price $5 yr. bull beta5 yr. bear betaMax. drawdown (1 yr.)
Bank of Nova ScotiaBNS-T82.4467.441.040.75-13.31
Canadian National RailwayCNR-T54.2465.511.000.76-10.12
Bank of MontrealBMO-T48.0874.231.010.85-12.94
Manulife FinancialMFC-T37.8920.302.211.74-12.80
CIBCCM-T36.6291.931.180.59-10.47
BCEBCE-T35.5745.410.550.37-7.64
Brookfield Asset Mgt.BAM/A-T27.7043.821.630.58-9.61
Sun Life FinancialSLF-T23.0437.611.561.16-10.67
Power FinancialPWF-T22.6931.761.391.27-12.12
GoldcorpG-T22.4927.471.330.06-33.96
Barrick GoldABX-T21.2018.190.86-0.77-25.82
Loblaw Cos.L-T18.5244.570.450.42-20.64
Teck ResourcesTCK.B-T13.9024.063.651.82-28.97
First QuantumFM-T13.8823.683.482.56-17.30
AgriumAGU-T13.1791.361.451.13-12.56
Power Corp. of CdaPOW-T13.1628.381.501.22-12.88
CGI GroupGIB.A-T11.1435.720.660.63-23.16
Fairfax FinancialFFH-T10.76479.151.330.53-15.68
Inter PipelineIPL-T10.0131.171.010.74-8.42
Average1.440.86

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