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A sizzling year for U.S. value-growth combo portfolio

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What are we looking for?

A U.S. take on the balanced investing approach we wrote about last week.

Our goal is to find a strategy that spans both the growth and value camps. Last week, we looked at a list of Canadian stocks that appealed to both approaches; today, we turn our gaze to U.S. stocks in search of a portfolio that can satisfy both bargain hunters and growth aficionados. Value investors like companies that are cheap in terms of their earnings or assets; growth investors prefer businesses that can rapidly expand their revenues and profits.

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Both strategies can work, but both go through fallow periods. Combining both approaches may produce more consistent returns than following either one alone.

How we did it

Craig McGee, senior consultant at CPMS Morningstar Canada, gave us a look at the CPMS U.S. Double 10 Earnings Value and Earnings Momentum Strategy, a pooled strategy that combines 10 stocks selected by the CPMS U.S. Earnings Value strategy and 10 stocks selected by the CPMS U.S. Earnings Momentum strategy.

The pooled portfolio includes growth stocks with higher earnings growth and upward estimate revisions from analysts, as well as rising share prices. It also features value stocks with reasonable growth attributes and low price-to-earnings (P/E) ratios, both in terms of the past year and what is expected for the year ahead.

In each strategy, there is a maximum of three stocks allowed in any one industry group.

The attached list shows the 20 current holdings in the pooled strategy, sorted in alphabetical order.

More about Morningstar

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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

The pooled strategy has enjoyed a sizzling year so far, with a total return of 50.4 per cent. By comparison, the S&P 500 total return index is up 28.9 per cent over the same period. Since Dec. 31, 1993, the model's annualized return is 18.6 per cent versus 9 per cent for the index.

Remember, though, that strategies that worked in the past aren't guaranteed to succeed in the future. Do your own research before buying any of the stocks listed here.

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