Fundamental Portfolio Gives Itself A Makeover

By: | Sat, Jan 5, 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 January 4, 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.

Affiliated Mgrs Grp (AMG) - 4.4%
Amphenol Cp (APH) - 5.2%
Cpfl Energia Sa Ads (CPL) - 4.4%
Diamond Offshore Drl (DO) - 6.0%
Greenhill & Co. (GHL) - 4.4%
Garmin Ltd. (GRMN) - 5.1%
Gymboree Corporation (GYMB) - 3.8%
Infosys Technologies Limited (INFY) - 5.0%
Jones Lang LaSalle (JLL) - 4.0%
Kinetic Concepts Inc (KCI) - 4.4%
Mobile Telsys Ojsc (MBT) - 5.1%
Mcdermott Int Panama (MDR) - 5.2%
Microsoft Corporation (MSFT) - 5.1%
Mechel Oao Ads (MTL) - 5.7%
Nvidia Corporation (NVDA) - 4.5%
Partner Communications Co. Ltd. (PTNR) - 5.5%
TransOcean Inc (RIG) - 5.6%
Sap Aktiengesell Ads (SAP) - 4.8%
SEI Investments Company (SEIC) - 4.9%
Schlumberger Ltd (SLB) - 5.1%
Cash - 2.1%


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

Equity: $100,018.84
Gain, Past 4 Weeks: -6.55%
Gain, Year to Date: -5.27%
Gain, Since Inception: +0.02%

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.

APH - $0.015 per share @ 121 shares held = $1.81
SEIC - $0.07 per share @ 166 shares held = $11.62

Total dividends = $13.43 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, which, incidentally, won't be long. 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, the portfolio is giving itself quite a makeover this month, with five positions being exited, and five replacements being added.

Remove the following five stocks from the list:

Affiliated Mgrs Grp (AMG) - 4.4%
Gymboree Corporation (GYMB) - 3.8%
Jones Lang LaSalle (JLL) - 4.0%
Mechel Oao Ads (MTL) - 5.7%
Nvidia Corporation (NVDA) - 4.5%

Including the cash percentage of 2.1%, this allows approximately 24.5% of the portfolio to be allocated equally to the five new purchases, with a target of 4.9% of equity.

Add the following five stocks to the list:

Accenture Ltd. (ACN) - 4.9%
Giant Interactive Ads (GA) - 4.9%
Lan Airlines Sa Ads (LFL) - 4.9%
Perini Cp (PCR) - 4.9%
United Therapeutics Corp (UTHR) - 4.9%

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 five substitutions listed above.


Shares of AMG, GYMB, JLL, MTL, and NVDA will be sold, market at open on Monday. Based on portfolio total value and closing prices on January 4, 2008, enough shares of ACN, GA, LFL, PCR, and UTHR to comprise a 4.9% allocation to the portfolio will be bought, market at open on Monday. Since the portfolio has little room for full allocations, I will round down any fractional shares in the share calculation for buys.



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