GLOBAL PORTFOLIO

A typical mid-capitalisation stock shows a minimum and maximum market capitalisation of $1-3m for the purposes of this study. The stocks examined also have strong value characteristics. For this model portfolio we will examine the returns over the last three years on a comparative and absolute basis. The portfolio of 14 value mid-cap stocks has beaten the MSCI World Index by +181.1 per cent since January 2001 and it has also achieved an absolute return of +148.86 per cent over the same time period (in dollars). This provokes the question: is this portfolio capable of achieving the same kind of return in the future? Well, as long as the 90-day moving average of the comparative strength is positive, a reasonable performance against the index is possible. There is obviously no guarantee that past results will represent future returns. We could use a “what if” simulation to help identify risks, but the correlation of the portfolio to the index is only 0.4126, which makes any kind of simulation difficult, diminishing the reliability of the forecast. By now you will certainly be curious as to what such a well-performing portfolio might look like. Many of these names are unfamiliar to most readers. Have a look at the dividend yield, the low dividend to earnings ratio (payout), as well as the extremely low price to earnings ratio of these stocks. Not one US stock is included in the portfolio, which may confirm that the European markets are cheaper on a comparative valuation basis. You may have expected a high weighting in conservative sectors such as public utility and financial stocks, however this is not the case as consumer cyclical and industrial stocks are the most heavily represented (78.57 per cent). Would you like to follow this strategy without risking your own money? Don’t forget to follow the review of strategies presented on a monthly basis where you can track the performance.