Tag Archives: author
How Would A Portfolio Based On The Most Followed SA Stocks Have Performed In 2014?
Summary In this article we examine how a portfolio created from the most followed stocks on Seeking Alpha would have performed in 2014. We create three portfolios: equal weighted, weighted based on the number of followers and weighted based on market cap. How did the portfolios do? Read on to see the results. The Most Followed Stocks The SA 30 in order of popularity: (click to enlarge) (click to enlarge) Total_Return data is from Morningstar (1/1/2014 – 12/26/2014), except for GOOG, which is from Y-CHARTS. Sixteen Dow components make the list: T, CAT, CVX, CSCO, KO, XOM, GE, IBM, INTC, JNJ, JPM, MCD, MSFT, PFE, PG and VZ. By Sector the Portfolio breaks down as follows: Basic Materials: COP, CVX and XOM Consumer Goods: PG, F, AAPL and KO Financial: BAC, C, JPM, NLY and WFC Healthcare: PFE, JNJ and GILD Industrial Goods: GE and CAT Services: MCD, NFLX and SBUX Technology: T, VZ, YHOO, MSFT, GOOG, IBM, INTC, FB, and CSCO Performance (click to enlarge) (click to enlarge) Thirteen of the 30 stocks outperformed SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) Year to Date. The equally weighted portfolio has a Total Return YTD of: 11.67% The equally weighted portfolio current yield is: 2.56% Technology companies lead the best performers with INTC, FB, AAPL, MSFT, CSCO and YHOO leading the pack. Five companies have negative Total Return YTD: GE, XOM, CVX, NFLX, IBM and AMZN. The equal weighted portfolio under performs SPY by a significant margin, returning 11.67% compared to 15.06%. It does have a respectable yield of 2.56%. A portfolio weighted by number of followers: Stock Percentage of Portfolio Apple (OTC: AAPL ) 15.62% Google (NASDAQ: GOOG ) 8.56% Facebook (NASDAQ: FB ) 5.34% General Electric (NYSE: GE ) 5.02% Bank of America (NYSE: BAC ) 4.96% Microsoft (NASDAQ: MSFT ) 4.73% Ford (NYSE: F ) 3.93% Intel (NASDAQ: INTC ) 3.59% Citigroup (NYSE: C ) 3.50% AT&T (NYSE: T ) 3.36% Cisco (NASDAQ: CSCO ) 3.29% Amazon (NASDAQ: AMZN ) 3.07% International Business Machine (NYSE: IBM ) 3.02% Exxon Mobil (NYSE: XOM ) 2.44% Johnson & Johnson (NYSE: JNJ ) 2.36% Verizon (NYSE: VZ ) 2.28% Pfizer (NYSE: PFE ) 2.09% Coca-Cola (NYSE: KO ) 1.92% JPMorgan Chase (NYSE: JPM ) 1.88% Yahoo! (NASDAQ: YHOO ) 1.84% Starbucks (NASDAQ: SBUX ) 1.83% Procter & Gamble (NYSE: PG ) 1.82% Annaly Capital Management (NYSE: NLY ) 1.80% Gilead Sciences (NASDAQ: GILD ) 1.78% Wells Fargo (NYSE: WFC ) 1.76% Caterpillar (NYSE: CAT ) 1.66% Chevron (NYSE: CVX ) 1.66% McDonald’s (NYSE: MCD ) 1.64% ConocoPhillips (NYSE: COP ) 1.63% Netflix (NASDAQ: NFLX ) 1.61% The Total Return YTD of the SA 30 weighted by followers: 16.9% SA 30 weighted by followers yield: 2.15% Weighting by number of followers provides better returns and beats SPY with returns of 16.9% compared to 15.06%. This portfolio is not very diverse with AAPL making up 15.62% (no wonder there are so many articles about AAPL) and the top four holdings make up over a third of the portfolio. Portfolio Weighted by Market Cap: Stock Percentage of Portfolio Apple 11.31% Exxon Mobil 6.68% Microsoft 6.68% Google 6.13% Johnson & Johnson 4.98% Wells Fargo 4.85% General Electric 4.38% Procter & Gamble 4.27% JPMorgan Chase 3.96% Facebook 3.81% Chevron 3.62% Pfizer 3.37% Verizon 3.36% Bank Of America 3.32% Coca Cola 3.18% Intel 3.07% AT&T 3.00% Citicorp ( C ) 2.79% International Business Machine 2.72% Cisco 2.45% Amazon 2.42% Gilead Sciences 2.39% McDonald’s 1.56% ConocoPhillips 1.46% Starbucks 1.05% Ford 1.01% Caterpillar 0.97% Yahoo! 0.82% Netflix 0.35% Annaly Capital Management 0.18% The Total Return YTD of a portfolio weighted by Market Cap: 15.27 Market weighted Portfolio Current Yield: 2.32% The portfolio weighed based on Market Cap narrowly beats SPY: 15.27% to 15.06%. This portfolio is also lacking in diversity with the top four holdings making up over 30% of the portfolio. Dividend Data (click to enlarge) All dividend data is from Seeking Alpha The list contains seven dividend aristocrats: T, CVX, KO, XOM, JNJ, MCD and PG. The same seven stocks are also dividend champions. Dividend Contenders or Challengers: COP, VZ, IBM and SBUX Of these eleven stocks that made at least one of the above lists only two outperformed the SPY for total return YTD: PG and JNJ. A fluke or were these best of breed DGI stocks overbought coming into 2014? Eleven of the stocks have yields of 3% or greater: NLY, T, VZ, COP, CVX, GE, MCD, PFE, F, XOM and CAT. Conclusions Overall the most followed stocks on SA had uninspiring performance. With equal weighting the top 30 underperformed the SPY. Weighted by number of followers they did better – but not significantly. From my perspective, this is not that surprising; although I believe the SA crowd as a whole is an intelligent investment community, it’s hard to outperform when selecting stocks that are so closely followed. Others may come to different conclusions – please comment I’d like to know what you think. Ideally I would have liked to do this based on the most followed stocks as of January first of 2014, I unfortunately did not have that data. My plan is to periodically report on this portfolio in 2015 so we can get a better calibration of how the most followed stocks at the beginning of the year perform going forward. I did not check the number of followers for every ticker in the SA stock universe. I checked the entire S&P 500 and a few hundred others. If anyone believes that I have missed a stock that should be in the Top 30, please let me know. I selected 30 stocks to match the number of stocks in the DJI. I can be convinced to add more if readers feel it would be useful. Obviously there is more data and inferences that can be made about these stocks – if you have any particular requests let me know. I am not a professional advisor or researcher. I am an individual investor who studies investing and shares my thoughts. I encourage all investors do their own due diligence and please share your findings. I strongly feel the best thing about Seeking Alpha is the sharing of ideas. Please comment; I value your input. Divergent opinions are welcome. Editor’s Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.
Is SCHC The Right ETF For International Exposure?
Summary I’m taking a look at SCHC as a candidate for inclusion in my ETF portfolio. The risk level is fairly acceptable for an international ETF. The ETF’s favorable risk profile is driven by the extremely diversified holdings and strong dividend yield. I’m not assessing any tax impacts. Investors should check their own situation for tax exposure. Investors should be seeking to improve their risk adjusted returns. I’m a big fan of using ETFs to achieve the risk adjusted returns relative to the portfolios that a normal investor can generate for themselves after trading costs. I’m working on building a new portfolio and I’m going to be analyzing several of the ETFs that I am considering for my personal portfolio. One of the funds that I’m considering is the Schwab International Small-Cap Equity ETF (NYSEARCA: SCHC ). I’ll be performing a substantial portion of my analysis along the lines of modern portfolio theory, so my goal is to find ways to minimize costs while achieving diversification to reduce my risk level. What does SCHC do? SCHC attempts to track the total return of FTSE Developed Small Cap ex-US Liquid Index. At least 90% of funds are invested in companies that are part of the index. SCHC falls under the category of “Foreign Small/Mid Blend”. Does SCHC provide diversification benefits to a portfolio? Each investor may hold a different portfolio, but I use (NYSEARCA: SPY ) as the basis for my analysis. I believe SPY, or another large cap U.S. fund with similar properties, represents the reasonable first step for many investors designing an ETF portfolio. Therefore, I start my diversification analysis by seeing how it works with SPY. I start with an ANOVA table: (click to enlarge) The correlation is about 69%, which is low enough to provide some solid diversification benefits so long as the ETF does not have an innately high level of risk. I measure risk with the standard deviation of daily returns. It isn’t perfect, but it works fairly well for my purposes and seems to hold up over time. Standard deviation of daily returns (dividend adjusted, measured since January 2012) The standard deviation is pretty good for foreign investments. For SCHC it is 0.8657%. For SPY, it is 0.7300% for the same period. Since SPY usually beats other ETFs in this regard, I’d look at that standard deviation level as being fairly favorable for an ETF that is competing for selection as a “Foreign Markets” ETF in my portfolio. Mixing it with SPY I also run comparison on the standard deviation of daily returns for the portfolio assuming that the portfolio is combined with the S&P 500. For research, I assume daily rebalancing because it dramatically simplifies the math. With a 50/50 weighting in a portfolio holding only SPY and SCHC, the standard deviation of daily returns across the entire portfolio is 0.7636%. Even in developed markets, I think 50% of a portfolio is way too high. When I drop the exposure to 20% in SCHC the standard deviation drops to .7342%. That’s a clear improvement, but I’d still like to see it a little lower. At 5%, the standard deviation is down to .7299% and diminishing returns are strongly in effect. Relative to other international investments, SCHC seems like a viable candidate for a larger position. I still wouldn’t consider going over 20%, but I think 5% to 10% is within reason. Why I use standard deviation of daily returns I don’t believe historical returns have predictive power for future returns, but I do believe historical values for standard deviations of returns relative to other ETFs have some predictive power on future risks and correlations. Yield & Taxes The distribution yield is 2.98%. The SEC 30 day yield is 2.11%. The ETF invests in foreign securities and I’m not a CPA or CFP. Investors concerned about tax consequences should seek advice from someone knowledgeable about their tax situation. If taxes are not a factor, the distribution yield is reasonable for producing income. Expense Ratio The ETF is posting .19% for an expense ratio. This is higher than the last few ETFs I have considered, but not high enough to stop me from considering it as a significant part of a portfolio. Market to NAV The ETF is trading right on NAV currently. However, premiums or discounts to NAV can change very quickly so investors should check prior to putting in an order. Largest Holdings The diversification within the ETF is excellent, as shown by the following chart: (click to enlarge) I don’t like including a significant position of U.S. dollars within an investment portfolio, but it is less than 2% and the portfolio of investments is phenomenally diversified. Since this ETF invests in smaller companies it is very important for the ETF to have extremely high levels of diversification. As long as the ETF trades near NAV, the ETF’s high level of diversification should continue to lead to relatively low levels of standard deviations. If there was a black swan even or investors soured heavily on international markets it could create an impact that would reach a large portion of the portfolio. Outside of those major events, the extreme diversification should help to stabilize the fund. Investing in the ETF is largely relying on modern portfolio theory. Making an investment requires a belief that markets are at least somewhat efficient so that the companies within the portfolio will be reasonably priced. Conclusion I’m currently screening a large volume of ETFs for my own portfolio. The portfolio I’m building is through Schwab, so I’m able to trade SCHC with no commissions. I have a strong preference for researching ETFs that are free to trade in my account, so most of my research will be on ETFs that fall under the “ETF OneSource” program. SCHC looks pretty good to me so far and is a leading candidate for inclusion in the portfolio.