Fundamental
Fundamental is a moderately low-beta, moderately low-turnover trading plan for stocks traded on major U.S. exchanges. It focuses on providing above-market returns over the longer term while keeping a variability of returns that is similar to the market’s risk profile.
Information is as of the close on December 7, 2007.
Model Allocation
Based on beginning with a $100,000 portfolio at inception, these are the current weights and holdings. The initial target was a buy of 5% weights per position. See my previous post on this system. Sort is alpha order by ticker and weights are rounded to the tenth of a percent.
Affiliated Mgrs Grp (AMG) – 4.9%
Abercrombie & Fitch (ANF) – 5.2%
Amphenol Cp (APH) – 5.2%
Cpfl Energia Sa Ads (CPL) – 4.7%
Diamond Offshore Drl (DO) – 5.2%
Garmin Ltd. (GRMN) – 5.9%
Gymboree Corporation (GYMB) – 4.5%
Infosys Technologies Limited (INFY) – 5.0%
Jones Lang LaSalle (JLL) – 4.6%
Kinetic Concepts Inc (KCI) – 4.3%
Mobile Telsys Ojsc (MBT) – 4.8%
Mcdermott Int Panama (MDR) – 4.6%
Microsoft Corporation (MSFT) – 4.8%
Mechel Oao Ads (MTL) – 5.4%
Nvidia Corporation (NVDA) – 4.7%
Partner Communications Co. Ltd. (PTNR) – 5.4%
TransOcean Inc (RIG) – 4.9%
Sap Aktiengesell Ads (SAP) – 4.7%
SEI Investments Company (SEIC) – 5.0%
Schlumberger Ltd (SLB) – 4.7%
Cash – 1.4%
Returns
Based on beginning with a $100,000 portfolio at inception.
Equity: $107,029.63
Gain, Past 4 Weeks: +7.03%
Gain, Since Inception: +7.03%
The following stocks in the Fundamental portfolio went ex-dividend in the past four weeks. I include the number of shares that would have been bought, if the plan were executed with a starting capital of $100,000, in order to calculate the return from dividends.
ANF – 11/30/2007 - $0.70 per share @ 67 shares held = $46.90
JLL – 11/13/2007 - $1.00 per share @ 60 shares held = $60.00
MSFT – 11/13/2007 - $0.44 per share @ 148 shares held = $65.12
PTNR – 11/19/2007 - $0.96 per share @ 259 shares held = $248.64
SLB – 12/03/2007 - $0.70 per share @ 52 shares held = $36.40
Total dividends = $457.06 on the tracking portfolio. I will add this amount to the returns on the next update, four weeks from today, since all of the stocks except SLB have an announced payment date in that range. I did not see an announced payment date for SLB, but for tracking purposes I will assume it falls in this period. Dividends paid will remain in cash until needed for a new purchase. Note, commissions are expensed at $10.00 per trade when accounting for returns.
Changes To Model Allocation
Fundamental screens for stocks that meet basic criteria, then ranks them by ROE to hold the top 20. As a result of this regular four-week evaluation, Abercrombie & Fitch Co. (ANF) is removed from the list, and Greenhill & Co. (GHL) is added to the list.
If this system were to be initiated today, the target allocation would be a buy for 5% weight holdings of the twenty stocks listed in Model Allocation, with GHL substituted in the place of ANF.
Tracking
Shares of ANF will be sold, market at open on Monday. Based on portfolio total value and GHL closing price on December 7, 2007, enough shares of GHL to comprise a 5% allocation to the portfolio will be bought, market at open on Monday. Since the portfolio has room in cash, and the ANF holding is above 5% currently, I will round up any fractional shares in the share calculation for buying GHL.
December 14th, 2007 at 5:43 pm
I continued to tracked these quite closely as I have put them on a watch list and have been following the movements. Its been one of gradual increase with no big spikes representing what I think you were trying to do, make a system that didn’t need daily monitoring. I’ve just been doing it to watch the daily movements as an educational exercise to validate what is happening in the sytem. Putting in place a stop loss at 10% hasn’t been triggered yet. I’m going to let it go as a hands off and let the system do the work.
December 15th, 2007 at 4:00 pm
So ANF is dropping off the list. What were the parameter changes that made that happen? I know that the top 20 are chosen after a monthly evaluation, but I would like to know what parameter,i.e. future sales, dividend,employment etc?, changed that would drop it from the top 20? I would assume that probably it would be a forward looking parameter that was readjusted due to market conditions. Just wanting to know if I’m following the algorithm or not understanding what is being measured.
December 15th, 2007 at 5:04 pm
Hi Dallas, I don’t want to completely disclose the system here, but there aren’t a lot of moving parts. The growth in EPS and Revenue is measured in two timeframes relative to the universe of available stocks with enough market cap, as is the ROE. I also filter by two items on the Cash Flow statement to check for earnings quality. Of all the stocks that pass, I take the 20 with the highest ROE. In the case of ANF, enough other companies reported good growth over the last month to move ANF off of the relative cutoff list on growth, i.e., it wasn’t anything ANF did that removed it, the system found stocks it “liked better.”