You can find the simple magic formula stocks for 2016 here.
The returns of this strategy are:
- July 2015-Dec 2015: -3.50%( CNX 500= -3.78%)
- 2016: -4.03% ( CNX 500=3.39%)
This is not a great return for the strategy but there are some caveats. It is a short duration to assess the return. Secondly, we are investing in all stocks with a ROA >25 and a P/E>5 in the CNX 500, while the actual strategy buys 3-4 stocks with low P/E from the top 25 or top 50 stocks every 3-4 months and holds it for a year. Whether this is important or not, I do not know. If we look at the returns of the 20 stocks with the lowest P/E, the returns are better, around -1.73%.
But in the Indian context we get only around 40 stocks from the CNX 500 and even if we include the whole Indian stock market, we get only around 120 stocks. I have chosen the CNX 500 because there may be liquidity and operator manipulation in the other stocks but this may not be true.
The simple magic formula stocks for 2017 are as follows, arranged from lower to higher P/E are as follows:
|Indo Count Inds.||163.65||17.14|
|Sun TV Network||492.4||18.98|
|P & G Hygiene||7,084.05||21.09|
|Gulf Oil Lubric.||648.7||27.37|
|Amara Raja Batt.||870.3||29.05|
|Dr Lal Pathlabs||1,070.95||50.53|
|Blue Dart Exp.||4,385.45||58|
We shall continue to track the returns of this strategy here.
You can read about my previous post here: Dogs of the Nifty 2015 Update.
The returns of the strategy for 2016 are as follows:
Dogs of the Nifty: 23.52
Small Dogs of the Nifty: 45.50%
S&P CNX 50: 4.17%
The strategy had a strong beating in 2015 and at the end of 2015 had not outperformed the Nifty over the previous 3-5 years. However it has trashed the indices this year (2016). This just shows how unpredictable the markets are and the importance of being married to a strategy for life.
You can see some return statistics in this spreadsheet.
The Dogs of the Nifty and the Small Dogs of the Nifty for 2017 are as follows: See this spreadsheet of how we arrived at the selections:
Dogs of the Nifty 2017
Small Dogs Of The Nifty 2017
We will continue to track the returns of this strategy over time.
The above is a list of equity mutual funds which have been given a medal of Gold, Silver or Bronze by Morningstar. This is a good starting point to choose as there are a plethora of funds.
One could consider investing in medal rated mutual funds with a star rating of 4 or 5 as these have shown good past performance as well as predicted to show superior performance. Invest in funds where the report date is recent, as older reports may not still hold true.
I was looking at the following table from the Vanguard paper: Assessing endowment performance – the enduring role of low-cost investing.
I wondered how some of my momentum strategies( Simple ETF Momentum Strategy using 4 highly liquid asset classes and Momentum Strategy Using Stocks and Gold) and investing just in small cap value stocks fared against the performance of Harvard and Yale endowments. This is shown in the table below and the data can be seen in this spreadsheet. The data for returns is taken from Simba asset class returns from the Bogleheads website.
Returns upto June 2013 for Harvard, Yale, other endowments, active funds and 60/40 stock bond mix
Returns upto Dec 2013 for value and momentum strategies
|5 year||10 year||15 year||20 year||25 year|
|All active mutual funds||5.1||6||4.9||7||7.9|
|60/40 stock/bond index||5.9||7.4||5.7||7.6||8.3|
|Simple Momentum Strategy using 4 liquid asset classes||13.87||8.17||11.1||11.83||12.86|
|Momentum Strategy using Stocks and Gold||15.35||13||12.09||12.39||13.48|
- One can see clearly that the small cap value strategy and the momentum strategy outperforms endowments, active mutual funds and 60/40 stock bond mix.
- The Small Cap Value matches the Harvard endowment.
- The Momentum Strategies are right there near the top with the Yale Endowment.
- One should however remember that there was no easy way to execute the momentum strategies or small cap value strategy in the 1990s. However it shows the power of momentum and value in asset classes and that the outperformance of Yale and Harvard may have been due to better exposure to these risk factors.
For an individual investor, these are good strategies to adopt for the long-run. One should however be aware of costs, slippages and taxes.
This post will outline a simple method to identify good mutual funds to select for investing. The steps are as follows:
The first step is to go to Morningstar.in and then get the list of medalist funds. These are the funds ranked gold, silver or bronze. This is based on Morningstar Analyst Rating. Essentially it is based on the analyst’s conviction in the fund’s ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over the long-term. If a fund receives a positive rating of Gold, Silver, or Bronze, it means Morningstar analysts think highly of the fund and expect it to outperform over a full market cycle of at least five years.
The second step is to go to both Morningstar India and Value Research Online and get the star ratings for each of these funds. The star rating is based on the fund’s past performance as compared to peers. Select the funds which have 4 or 5 star rating.
The third step is to list these funds, in which we can then invest with a fair amount of confidence. Invest in the direct plan and the growth option to get better returns.
The list of these funds as of today are:
- Birla Sun Life Frontline Equity Fund Growth
- ICICI Prudential Focused Blue Chip Equity Fund Growth
- Reliance Top 200 Fund Growth
- Franklin India Blue Chip Fund Growth
- Franklin India Prima Fund Growth
- SBI Magnum Global Fund Growth
- Franklin India High Growth Companies Fund Growth
- Franklin India Prima Plus Fund Growth
- ICICI Prudential Value Discovery Fund Growth
- Franklin India Flexi Cap Fund Growth
- DSP BlackRock Micro Cap Fund Growth
- Franklin India Smaller Companies Fund Growth
I hope you find this method useful. Happy Investing.
This post contains my notes and reflections from the book: The Busy Doctor’s Investment Guide by David Yeh.
Family, friends, work, health and community are important in our lives. But money is also equally important. What you do with the money that comes into your life is important. The main thing is to save and invest so that one can become financially free. There are many mechanical formulas of investing out there and many of them will work if we are disciplined and not get swayed by how much more the other person is making…which means, we have to ultimately have our own personal goals which are well-defined and work towards them. Continue reading