Fundamental Portfolio Holds Its Own

By: | Sun, Jun 22, 2008
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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 June 20, 2008.

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.

America Movil, S.A.B (AMX) 3.7% weight
Boeing Co. (BA) 4.4% weight
CF Industries Holdin (CF) 6.5% weight
Coach (COH) 4.5% weight
Graco Inc (GGG) 5.1% weight
Gilead Sciences, Inc (GILD) 5% weight
Graftech Internation (GTI) 5.1% weight
Herbalife Ltd. (HLF) 4.5% weight
International Busine (IBM) 4.9% weight
Kellogg Co (K) 5.0% weight
Royal Kpn Nv S/Adr (KKPNY) 4.5% weight
Landstar System, Inc (LSTR) 5.5% weight
Magellan Midstream Holdin (MGG) 4.6% weight
Netease.Com, Inc. (NTES) 5.1% weight
Southern Copper Corp (PCU) 5.0% weight
Polaris Industries I (PII) 5.0% weight
Partner Communications (PTNR) 6.2% weight
Terra Nitr Co Com Ut (TNH) 5.2% weight
Terra Inds Inc (TRA) 5.4% weight
Waters Corp. (WAT) 4.9% weight
Cash 0.1% weight


Based on beginning with a $100,000 portfolio at inception.

Equity: $100,784.62
Gain, Past 4 Weeks: 0.99%
Gain, Year to Date: -4.55%
Gain, Since Inception on 11/12/2007: 0.78%

The drawdown (reduction in equity from peak to trough, when a system or strategy is losing money) discussed in previous entries is back to the mid-single-digit level. Equity had gotten to within 4% of its highs from Dec 2007, but has fallen back to a 5.8% drawdown, similar to the 6.8% drawdown at the last update four weeks ago.

I am still concerned with the prior level of turnover in positions, which was higher than I expected, but may be due to the nature of this recent market correction. With the prior update, I have made some changes to the timeframes used to filter the earnings quality items in the screen, and I believe these will lead to lower turnover in the future. It has lead to lower turnover THIS week, as only four positions are changing over. It'll be interesting to see if this continues.

The following stock in the Fundamental portfolio went ex-dividend in the past four weeks: K.

Total dividends = $30.38 on the tracking portfolio. This amount has already been added to the returns shown above. 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, such as earnings and revenue growth, earnings quality, and debt-to-capital rations, then ranks them by ROE to hold the top 20. As a result of this regular four-week evaluation, the portfolio is making the following changes.

Remove the following stocks from the list:

America Movil, S.A.B (AMX) 3.7% weight
Coach (COH) 4.5% weight
Graftech Internation (GTI) 5.1% weight
Netease.Com, Inc. (NTES) 5.1% weight

Including the cash percentage of 0.1%, this allows approximately 18.5% of the portfolio to be allocated equally to the new purchases, with a target of 4.6% of equity each.

Add the following stocks to the list:

Accenture Ltd. (ACN)
Aeropostale Inc (ARO)
Dell Inc. (DELL)
J Crew Group Inc (JCG)

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 the substitutions listed above.


Shares of the stocks listed above will be sold, market at open on Monday. Based on portfolio total value and closing prices on June 20, 2008, enough shares of the replacements to comprise a 4.6% each allocation to the portfolio will be bought, market at open on Monday. Since the portfolio has little room for full allocations, I will round any fractional shares down in the share calculation for buys.



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