US Value About
1 Nov 2021
This strategy was developed for investors who want to hold a portfolio of stocks that have been screened on company fundamentals. From this portfolio of stocks, we expect strong company performance which we expect will lead to outperformance in their share prices.
US VALUE STRATEGY
The US Value Strategy selects stocks from the S&P 500 as well as the Nasdaq 100 indices. This produces a pool of approximately 500-600 stocks to choose a portfolio from (depending on the overlap between the two indices). The Value ranking process narrows this list down to just ten stocks which form the recommended portfolio for investors following this strategy.
Not all of the trades will be a winner, but the statistics should be in the investors’ favour such that over the long term, we expect a market-beating return. According to the back-testing, we expect 59% of trades to be winners, and we expect an average profit per winning trade of 12.5%. On the other side, the losing trades have an average loss per trade of just 9.24%.
ABOUT THE STRATEGY
The strategy invests in listed US equities that fall within the S&P 500 and Nasdaq 100 indices. There are three pillars to the strategy that we employ to produce market-beating returns and we combine these pillars to achieve returns that exceed that of the broader market with less volatility. The three components of the strategy are to find companies that:
1. Have a strong likelihood of sustainable, recurring cash flows and earnings
2. Produce a high return on invested capital
3. Have high earnings relative to current share price (low P/E ratio)
When combined, these three pillars provide the ingredients necessary to achieve the investment objectives of maximizing the return at the lowest possible volatility
HOW TO FOLLOW THIS STRATEGY
The US Value Strategy is designed to be as easy as possible for investors to follow. To follow the US Value Strategy, investors need to buy the recommended stocks in equal weights. Weights can drift over time as stock prices move, but we only recommend re-balancing stock weights if they stray too far from the target weight (10% per stock). The stock volumes shown in this table are based on a $5,000 investment per stock which produces a $50,000 portfolio.
To follow this portfolio; the minimum amount that we recommend is $10,000 which requires an allocation of $1,000 per stock.
Once per month, the list of stocks will be updated in what we call a ‘re-balance. This means investors will need to look at the new list and sell any stocks that are no longer on the list. After these stocks are sold, the new stocks from the current table can be bought.
The US Value Strategy has been developed and tested by simulating the investment performance over historical stock price data. This allows us to gather performance data based on how this strategy would have performed if we had run them during these prior time periods. The statistics in the table below summarise the results of this testing and compare them to the S&P 500.
|US VALUE STRATEGY||S&P 500 ACCUM INDEX|
|Construction||Ten of the best quality stocks selected from the S&P 500 and Nasdaq 100 indices||Free-float-adjusted market cap weighted, comprising 500 of the largest US stocks|
|Management||Rebalanced once per month on the 1st of the month||Rebalanced four times per year according to market cap and liquidity|
|Annual Average Return*||18.94% per annum, before fees||9.11% per annum, before fees|
|Worst 12-month Return*||-37.6% (Feb-2008 to Feb-2009)||-43.3% (Feb-2008 to Feb-2009)|
*As at 31 December 2018, based on 15 years of back-tested data
MINIMUM INVESTMENT AMOUNT AND PERIOD
The minimum investment amount for US Value Strategy is $10,000. The minimum brokerage amount charged per trade is $15, this would represent a 1.5% charge on a trade size of $1,000 (portfolio size of $10,000 for 10 stocks). If the investment amount increases to $20,000 due to minimum brokerage this charge will automatically decrease to 0.75% of the trade size.
We recommend a time horizon of at least three years for this strategy due to the possibility of a negative return in any given year. Based on the strategy back-testing, the probability of a positive return over any three-year time horizon is 96%, and therefore having an investment time horizon of at least this much maximizes the probability of a positive investing outcome. Investors should know that the strategy back-testing of positive return over any three-year doesn’t guarantee to get the same result in the next years.
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