It is time to check the performances of GuruFocus Model Portfolios.
All GuruFocus value strategies gave back some of their gains as the market tanked. The portfolios that underperformed S&P500 until the end of the first quarter extended their gains, even as the market is almost flat. As a result, all GuruFocus value strategies outperformed the market
These are the details of the performances of the four value strategies:
Value Strategies (Long):
All numbers do not include dividends.
|Year||S&P 500||Buffett-Munger Screener top 25||Top 25 Undervalued Predictable Companies||Top 25 Historical Low P/S Ratio Companies||Top 25 Historical Low P/B Ratio Companies|
|July 31, 2011||2.8%||8.7%||2.7%||3%||2.8%|
We can see that among the four model portfolios, the portfolio of Buffett-Munger Screener outperformed the S&P500 by 5.9% in the first quarter. All other three model portfolios are about even with S&P500.
The "Buffett-Munger Screener" can be used to find companies with high-quality business at undervalued or fair-valued prices:
- Companies that have high Predictability Rank, that is, companies that can consistently grow their revenue and earnings.
- Companies that have competitive advantages. It can maintain or even expand its profit margin while growing its business
- Companies that incur little debt while growing business
- Companies that are fair valued or under-valued. We use PEPG as indicator. PEPG is the P/E ratio divided by the average growth rate of EBITDA over the past 5 years.
From the back testing study from 1998-2008 we have found strong correlations between the Predictability of Businesses and the long-term return of stocks. The group of undervalued highly predictable companies performed the best. This group had an annualized gain of 20%, while the market just averaged 2.7% a year.
For details, go to: What Worked In The Market From 1998-2008? Part II. Under-Valued Predictable Companies And Buffett-Munger Screener.
Both of the portfolios of Buffett-Munger Screener Top 25 and Top 25 Undervalued Predictable Companies were started in January 2009. Since inception, Buffett-Munger portfolio gained more than67.2%, while the S&P500 gained 43.1%. Although it slightly underperformed for the first quarter of this year, the portfolio of Top 25 Undervalued Predictable Companies has since gained back. It did even better since 2009. The portfolio gained 92.13% since Jan. 2009, more than doubling the returns of the S&P500 in the same period.
This is the 12-month performance chart of the portfolio of Buffett-Munger Screener:
Both Buffett-Munger Screener and Top 25 Undervalued Predictable Companies select stocks from the companies that have the highest predictability rank. Top 25 Undervalued Predictable Companies Portfolio selects the stocks that are undervalued from DCF calculations. For the current list of undervalued predictable companies, go to the screener.
The other two model portfolios are for predictable companies that are traded at historical low P/S and historical low P/B ratios, respectively. Both of these two portfolios outperformed the market average in 2010, but about even with the market year-to-date.
Please read Stocks Traded at Historical Low Price/Book Ratios: RGLD, AZN, ABT, JNJ, WMT for some of the stocks in the list. Go to historical low P/B ratios for the complete list.
All the portfolios are rebalanced once a year; therefore, no portfolio changes will be made at this time.
These are the summary of the four value strategies mentioned above:
1. Buffett-Munger screener: Invests in predictable companies that have low debt, consistent profit margin, and traded at low PE to growth ratios.
2. Undervalued Predictable Companies: Invests in predictable companies that are undervalued based on DCF model.
3. Historical low P/S: Companies that have high predictability rank, but traded at historical low P/S ratios.
4. Historical low P/B: Companies that have high predictability rank, but traded at historical low P/B ratios.
GuruFocus premium membership is needed to access the details of the portfolios and screeners. We also publish a monthly Buffett-Munger newsletter which features the picks from Buffett-Munger Screener. If you are a premium member, you can download this for free. If you are not a Premium Member, we invite you for a 7-day Free Trial.