Ivy Portfolio Preview for August

Early in 2012  Scott’s Investments added a daily Ivy Portfolio spreadsheet. This tool uses Google Documents and Yahoo Finance to track the 10 month moving average signals for two of the portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages.

The Ivy Portfolio spreadsheet tracks the 5 and 10 ETF Portfolios listed in Faber’s book. When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. When the security is trading above its 10 month simple moving average the positions is listed as “Invested”.

The spreadsheet’s signals update once daily (typically in the evening) using dividend/split adjusted closing price from Yahoo Finance. The 10 month simple moving average is based on the most recent 10 months including the current month’s most recent daily closing price.  Even though the signals update daily, it is not an endorsement to check signals daily. It simply gives the spreadsheet more versatility for user’s to check at their leisure.

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The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10 month simple moving average, using both adjusted and unadjusted data.

If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data you will see differences in the percent an ETF is above/below the 10 month SMA. This could also potentially impact whether an ETF is above or below its 10 month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach.

I do not track these portfolios as hypothetical portfolios like I do with other portfolios on the site. However, I will periodically post backtest results on the strategy. Below are updated backtest results for the Ivy Portfolio using ETFReplay.com.

The Ivy 5 Portfolio, using a 10 month moving average and updated monthly has performed as follows since 2008 and compared to SPY:

The Ivy 10 Portfolio, using a 10 month moving average and updated monthly has performed as follows since 2008 and compared to SPY:

The strategy’s strength is avoiding significant drawdowns during periods of market turbulence, such as 2008. During periods of strong uptrending equity markets it has the potential to under-perform a benchmark such as SPY.  “Choppy” markets, in which markets are trend-less can also reduce the strategy’s returns as securities bounce above and below long-term moving averages without establishing a trend.

The current signals based on July 27th’s closing prices are below. While equity markets have had a turbulent few weeks and months, the US-linked equity ETFs, VB and VTI, remain above their long-term moving average.  Real-estate linked ETFs remain the strongest sector in terms of their percent above their 10 month moving average. Global equity ETFs, VWO and VEU, remain below their respective long-term moving averages as do commodity-linked ETFs DBC and GSG. However, it is worth noting that other popular commodity linked ETFs that focus on agricultural commodities, such as the Powershares DB Agriculture Fund (DBA), are presently above long-term moving averages.

The first table is based on adjusted historical data and the second table is based on unadjusted price data:

Weekend Readings and Gold Analysis

On Gold:

All About Gold – Turnkey Analyst

Is Gold Ready for All-Time Highs? David Banister

Gold Testing Important Level – Chris Vermeulen

Gold and British Pound Set to Move – Peter L Brandt

The Rest:

IndexUniverse: Don’t Forget Index Trading Costs & Why We Don’t Rebalance

LIBOR Scandal Explained – Barry Rithotz

 The 10 Best, and Worst, Times in History to Invest – Mebane Faber

 Why We’re Driven to Trade – Jason Zweig WSJ

Hoisington Quarterly Review and Outlook (pdf) & Gambling in the House (pdf) – John Mauldin


More on this topic (What's this?)
Has Gold & Silver Finally Bottomed?
Gold Price Gravitating Lower Towards $1000
Read more on Gold at Wikinvest

How to Position Yourself for a 10 Year Pattern Breakout

Chris Vemeulen wrote a big picture article this week using technical analysis, How to Position Yourself for a 10 Year Pattern Breakout.

As an aside, I will be posting a review in the week or so of Martin Pring’s Investing in the Second Lost Decade: A Survival Guide for Keeping Your Profits Up When the Market Is Down.  As you can obviously tell by the title, the time frame  is similar to Vermelen’s but I’ve yet to finish the book so more on it later…

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Market Outlook
Read more on Hang Lung GRP, Breakout at Wikinvest

More Weekend Fun

On the financial sector and Libor:

Sheila Bair: Two Years After Dodd-Frank, Why Isn’t Anything Fixed? Yahoo Finance

The Libor Scandal: Costs and Victims – Cumberland Advisors

 The Libor Fix – Das Spells it out – The Disciplined Investor

Failing to Break Up the Big Banks is Destroying America – The Big Picture

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The rest:

5 Ways to Fix Your Retirement – Jim Jubak, MSN

Things That Make You Go Hmmm… (pdf) , John Mauldin

When Bankers get Nervous, Watch Out – Bill Fleckenstein

Investors 10 Most Common Mistakes – Barry Ritholtz

The Lion in the Grass (pdf) – John Mauldin

Who is the Smallest Government Spender Since Eisenhower? Forbes

Graham Value Portfolio

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In January I announced a new portfolio, a Benjamin Graham “inspired” value stock portfolio.  The purpose of the hypothetical portfolio is to track returns for a portfolio of 15 stocks selected based on a variety of valuation metrics.  I originally intended to update the portfolio monthly; however, in the spirit of creating a lower turnover, value-driven portfolio going forward it will be updated less frequently, approximately once per quarter. I have also added an additional criteria to limit turnover in the portfolio (see below).

The Graham portfolio is an attempt to add a value strategy to Scott’s Investments, which is otherwise focused on momentum, trend, income and market timing strategies. There are numerous ways to add market timing or hedging techniques to any stock portfolio, such as shorting the S&P 500 when it trades below a long-term moving average while simultaneously holding a portfolio of long stock positions. However, for the purposes of this portfolio there will be no additional timing or hedging techniques.

The criteria used to select the stocks are listed below.  The tools used to perform the screen and backtests are courtesy of  Stockscreen123 (“SS123”) and Portfolio123 (“P123″).

The actual screen factors are below:

  • Liquidity filter: No OTC Stocks
  • Eliminate companies classified in the Miscellaneous Financial Services Industry, most of which are investment companies and funds and not the kind of stocks this all-star tended to seek
  • Current ratio must be at least 1.5
  • Long-term debt must be no higher than 10% above working capital
  • EPS must be above breakeven in each of the last four quarters and in each of the last five annual periods
  • Trailing 12 month EPS most be above EPS in the latest annual period
  • EPS in the latest annual period must be above EPS in the prior year and five years ago
  • The company must have paid common dividends in the last 12 months

The ranking system used as a basis for selecting the top 15 based among those stocks that pass the Graham screen are below:

  • Valuation – 60% of total
  • Trailing 12 month P/E (15% of this category)
  • Price-to-Book (15% of this category)
  • Price-to-Tangible Book Value (35% of this category)
  • Operating P/E, defined as Market Capitalization divided by Business Income, which is Sales minus Cost of Goods sold minus Selling, General & Administrative Expense and omits unusual items (35% of this category)
  • Earnings – 40% of total
  • 5-year EPS Growth Rate (50% of this category)
  • EPS Stability, defined as the standard deviation of EPS over the past 16 quarters, lower being better (50% of this category)


I began tracking this portfolio real-time on January 13th, 2012.  As of this writing, the portfolio is down 5.53% including dividends,compared to a positive return of 5.7% (excluding dividends) for SPY over the same period. A real-world application of this portfolio could also utilize stop losses in order to prevent large drawdowns in single positions. However, for the purposes of tracking the portfolio results all positions are bought and held until rebalancing.

One new twist has been added to help limit portfolio turnover – stocks will only be sold when they drop out of the top 20 in Graham Value screen.  Thus, a stock could theoretically drop to the 20th ranking but remain in the 15 stock portfolio if it is a current holding.

An interesting early trend in live tracking is that of smaller, less liquid equities appearing frequently on the list. This makes for a potentially more volatile, higher beta list of equities.

The top 20 stocks are listed below:


Ticker Name Rank MktCap Industry
JST Jinpan International Ltd 97.74 114.63 Electrical Equipment
PAAS Pan American Silver Corp 95.81 2229.94 Metals & Mining
SVT Servotronics Inc. 94.73 19.48 Electrical Equipment
CHRM Charm Communications Inc 94.37 211.99 Media
PLPC Preformed Line Products Company 88.37 298.7 Electrical Equipment
EEI Ecology and Environment Inc. 88.28 53.06 Commercial Services & Supplies
HP Helmerich & Payne Inc. 86.08 4617.6 Energy Equipment & Services
FORTY Formula Systems (1985) Ltd 83.09 196.35 IT Services
CVX Chevron Corp 82.28 210696.1 Oil, Gas & Consumable Fuels
MANT ManTech International Corp 82.17 829.24 IT Services
TESS TESSCO Technologies Inc 81.22 163.57 Communications Equipment
ALG Alamo Group Inc. 80.77 360.87 Machinery
DEER Deer Consumer Products Inc 78.24 90.7 Household Durables
KNM Konami Corp 77.91 2963.7 Software
HUM Humana Inc. 74.7 12156.84 Health Care Providers & Services
HAL Halliburton Co 70.03 26767 Energy Equipment & Services
SWM Schweitzer-Mauduit Intl Inc 68.94 1108.99 Paper & Forest Products
WAG Walgreen Co 68.45 26183.18 Food & Staples Retailing
EGO Eldorado Gold Corp 67.55 7591.76 Metals & Mining
KBR KBR Inc 66.41 3467.93 Construction & Engineering

Current positions are listed below:

Symbol Name Purchase Date Cost Basis Current Value Percentage Gain/Loss
JST Jinpan International Ltd 7/17/2012 $6,662.70 $6,662.70 0.00%
SVT Servotronics, Inc. 1/13/2012 $6,664.68 $6,316.20 -5.23%
PAAS Pan American Silver Corp 7/17/2012 $6,649.50 $6,649.50 0.00%
CHRM Charm Communications Inc 7/17/2012 $6,667.84 $6,667.84 0.00%
MANT Mantech International Corp 2/15/2012 $7,510.88 $4,628.00 -38.38%
HP Helmerich & Payne Inc. 7/17/2012 $6,617.09 $6,617.09 0.00%
EEI Ecology and Environment 1/13/2012 $6,658.20 $4,829.25 -27.47%
ALG Alamo Group, Inc. 3/14/2012 $6,748.11 $7,418.79 9.94%
CVX Chevron Corporation 1/13/2012 $6,577.58 $6,660.66 1.26%
FORTY Formula Systems (1985) Ltd 7/17/2012 $6,655.50 $6,655.50 0.00%
WAG Walgreen Company 4/13/2012 $7,004.48 $6,508.40 -7.08%
PLPC Preformed Line Products Company 3/14/2012 $6,732.66 $5,858.00 -12.99%
HUM Humana Inc. 3/14/2012 $6,722.10 $5,659.50 -15.81%
TESS TESSCO Technologies Inc 7/17/2012 $6,648.64 $6,648.64 0.00%
DEER Deer Consumer Products Inc 7/17/2012 $6,669.30 $6,669.30 0.00%

Finally, for those of you interested in backtested results, below are the results of this screen, re-balanced every three months beginning on 1/2/1999. Please note that the backtests do not include the rule that stocks must fall out of the top 20 before being sold. Also, tests exclude commissions and taxes:

A five year test starting on 7/17/2007 looks like the following:

All tests courtesy of  Stockscreen123

Friday Readings

Below is a list of articles to start the weekend:

David Banister on What the GLD ETF Chart tells us about GOLD and Chris Vermeulen notes The Next Major Move in Precious Metals is Close

LIBOR Scandal Explained – Barry Ritholtz

Mike “Mish” Shedlock: “The recession has begun”. See also his Demographic Time Bomb

IndexUniverse: FINRA Issues About ETNs

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High Yield Momentum Portfolio for July

Once per month I update a high yield dividend stock momentum portfolio on Scott’s Investments.  The portfolio is comprised of the highest yielding stocks in the S&P 500 with high price momentum.

The portfolio is a simple quantitative strategy and begins by screening the S&P 500 for stocks yielding greater than 4%. The results are then ranked by their 6 month returns.  The top stocks are then added to a hypothetical portfolio and tracked publicly on Scott’s Investments.  This month there were 55 results, six less than last month.

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Per a previous article, the highest momentum, high-yield stocks have historically out-performed lower yielding, lower momentum stocks.  The screen is more of a trading strategy and less of a passive income strategy, although the dividends do play an essential component in the overall returns. Thus, turnover could be high and the strategy is not for everyone but I have added one modification to the strategy to minimize turnover.

In order to limit turnover stocks with yields that have fallen below 4% due to share price appreciation will remain in the portfolio. Stocks will only be sold when yield falls below 4% due to dividend cuts or when the six-month performance would otherwise lag the top 10-11 stocks in the screen. .

Click here for MarketClub’s Top 50 Trending Stocks

The portfolio has turnover in three positions for July. The Dow Chemical Company (DOW), Williams Companies (WMB), and CMS Energy (CMS) are all being sold due to lagging 6 month price momentum.  The proceeds were used to purchase positions in Verizon (VZ), Reynolds American (RAI), and FirstEnergy (FE) .

The High Yield Momentum Portfolio was designed to be fully invested at all times regardless of market conditions. However, as part of a larger portfolio there may be additional steps an investor can take to reduce risk and diversify strategies.  For example, the Ivy Portfolio uses a 10 month moving average to dictate an invested or cash position (signals are updated daily at Scott’s Investments). An investor could hedge long positions by shorting (or purchasing an inverse ETF) an equity market index such as the S&P 500 when it trades below a long-term moving average.

Below are the top 15 high yield momentum stocks as of July 11th.  Keep in mind that only 10 stocks are held in the portfolio, the 3 new additions are in bold and the current holdings can be viewed on the right-hand side of Scott’s Investments and in the second table below.

Since inception the portfolio is up 11.22%, up 5% versus last month’s update. Returns exclude commissions, taxes, and are hypothetical:

Data source: Finviz.


Ticker Company Dividend Yield Performance (Half Year) Performance (Year)
FII Federated Investors, Inc. 4.42% 27.97% -3.42%
MO Altria Group Inc. 4.64% 25.38% 38.73%
CINF Cincinnati Financial Corp. 4.24% 24.13% 40.52%
LO Lorillard, Inc. 4.50% 23.96% 32.53%
T AT&T, Inc. 4.99% 21.67% 21.21%
VZ Verizon Communications Inc. 4.45% 19.29% 27.41%
FE FirstEnergy Corp. 4.49% 18.40% 17.15%
RAI Reynolds American Inc. 5.16% 14.19% 29.35%
PCG PG&E Corp. 4.01% 12.73% 11.38%
DTE DTE Energy Co. 4.20% 12.19% 23.46%
CTL CenturyLink, Inc. 7.26% 12.01% 9.70%
TEG Integrys Energy Group, Inc. 4.72% 11.74% 16.93%
SCG SCANA Corp. 4.10% 11.53% 28.93%
PNW Pinnacle West Capital Corporation 4.03% 11.44% 22.34%
CMS CMS Energy Corp. 4.05% 11.37% 25.25%


Current positions including the new updates:

Position Purchase Date Cost Basis Current Value Percentage Gain/Loss Excluding Dividends Current Yield
MO 5/11/2012 $9,918.48 $11,019.84 11.10% 4.64%
VZ 7/11/2012 $10,596.40 $10,596.40 0.00% 4.45%
CINF 2/10/2012 $10,748.40 $11,859.12 10.33% 4.24%
FE 7/11/2012 $10,577.52 $10,577.52 0.00% 4.49%
FII 3/12/2012 $11,050.81 $11,495.17 4.02% 4.42%
T 5/11/2012 $9,909.05 $10,401.70 4.97% 4.99%
RAI 7/11/2012 $10,556.70 $10,556.70 0.00% 5.16%
KIM 4/10/2012 $11,172.12 $12,082.72 8.15% 3.95%
PCG 6/11/2012 $10,498.98 $10,582.86 0.80% 4.01%
LO 2/10/2012 $10,664.46 $11,982.51 12.36% 4.50%
More on this topic (What's this?)
7 Higher Yield Dividend Growth Stocks
Is time spent learning dividend investing worth it?
Preventing Blind Spots in Dividend Investing
Read more on Dividend Investing at Wikinvest

Market Readings

Most Accurate Stock Market Predictions – Next Major Move –  Chris Vermeulen

Barry Ritholtz on some more Investor Errors, part of his “Top 10 Investors Errors” series: Asset Allocation vs Stock Picking, Passive vs Active Management, Past Performance vs Future Results, Cognitive Deficits, Neglecting the Long Cycle

What if the Fed Throws a QE3 Party and Nobody Comes? John Hussman

Into the Matrix (pdf) – John Mauldin

Yves Smith of Naked Capitalism on the LIBOR scandal

What’s In a Name? Bill Gross

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More on this topic (What's this?)
Anticipating The Rate Hike
Rising Interst Rates Historically A Positive For Equity Returns
You can't really see it on this chart so you'll have to trust me
Read more on Hang Lung GRP, Asset Allocation, Federal Reserve at Wikinvest