What are we looking for?
Yesterday, we delved into Validea Canada's guru investing strategies, looking for a way to invest in the wisdom of several of the Street's smartest minds at the same time. Whereas yesterday's column highlighted stocks that overlapped with the biggest number of gurus' strategies, today we take another angle - what would a portfolio look like if we took the top picks from the most successful guru strategies?
Validea's top five gurus portfolio
Validea, a U.S. stock research firm, has been running a subscription-based website for years offering a range of stock screens and model portfolios that emulate the investing strategies of some of the best-known equity market gurus, including Benjamin Graham, Warren Buffett and Peter Lynch. (It tracks a dozen guru strategies altogether.) Last fall, in partnership with Globe Investor, Validea launched a Canadian service, validea.ca, that allows investors to apply these same guru screens to Canadian stocks.
One of Validea Canada's model portfolios is its Top Five Gurus portfolio. In this model, Validea identifies the five best-performing of its guru strategies, adjusted annually and based primarily on historical risk-adjusted returns, and takes the top two stocks from each of these, based on the highest scores for the various quantitative criteria for that particular strategy. (The component stocks are re-balanced monthly.) The resulting 10-stock portfolio forms a cross-section of the best picks from the five best-performing guru strategies. We've included that list of stocks in the accompanying table, along with some of the financial metrics that are prevalent in Validea's guru screens.
What did we find?
The Canadian version of Validea's Top Five Gurus portfolio has only been around since last August, so there's not a lot of history to draw from in assessing its performance. But over that period, this strategy has generated a price return of 17.8 per cent, well ahead of the 12.4 per cent rise in the S&P/TSX composite index.
The Top Five Gurus performance is well behind the top-performing guru strategy over that time - the 38 per cent generated by the small-cap growth strategy of The Motley Fool investor newsletter and website of brothers David and Tom Gardner. But the Five Gurus has outperformed eight of the 12 guru portfolios Validea tracks, and its return is ahead of the median return of 15.7 per cent. While, as previously noted, the time period is a short one to draw any firm conclusions, so far the Five Gurus approach has looked like a well-balanced approach to putting some gurus to work for you.
David Parkinson