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New GuruFocus Model Portfolio: High Quality Low CapEx

We added two more model portfolios for 2021

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James Li
Jan 07, 2021
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We are pleased to announce that we started tracking this year two model portfolios that utilize the High Quality Low Capital Expenditures investing strategy: one for the U.S. and one for China.

U.S. and China market valuation summary

According to the Buffett Indicator page, the U.S. stock market started the new year significantly overvalued based on Berkshire Hathaway Inc. (

BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)'s favorite market indicator. As of Thursday, the Buffett Indicator stands at 140.80%, i.e., the value of the Wilshire 5000 full cap price index is approximately 1.4 times greater than the sum of gross domestic product and total assets of the Federal Reserve.

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Based on the current market valuation level, the implied return of the U.S. market is approximately -0.9% per year over the next eight years including dividends, assuming that market valuations reverse to the 20-year median. A scenario analysis shows that the implied return of the U.S. market can range between -5.1% per year in the pessimistic case of reversion to 70% of the 20-year median and 2.2% per year in the optimistic case of reversion to 130% of the 20-year median.

On the other hand, the ratio of total market cap to gross domestic product for the Chinese stock market stands at 66.74%, with a 10-year median of 59.14% and a range between 38.54% and 93.10%. Based on the current valuation level, the implied return of the Chinese stock market is approximately 5.4% per year, including dividends and business growth.

High Quality Low CapEx Screener and backtest summary

As the name implies, the High Quality Low CapEx Screener gives GuruFocus Premium members a list of stocks with high business quality and low capital expenditures. Key criteria include high financial strength, profitability, business predictability, revenue and earnings growth.

Table 1 reports the Screener's performance during the backtest period between January 2006 to January 2021 among U.S. stocks according to the Screener's Backtesting feature, a Premium Plus feature of GuruFocus.

Year

Portfolio Gain

SP500 Gain

DJIA Gain

NASDAQ Gain

2006

3.60

11.78

17.40

4.80

2007

9.89

3.24

8.79

19.03

2008

-27.19

-38.28

-32.13

-41.72

2009

20.09

23.49

22.74

54.69

2010

11.12

12.84

14.02

20.15

2011

-3.70

-0.18

8.05

3.48

2012

5.92

13.47

9.94

18.13

2013

25.34

29.69

29.64

36.62

2014

9.37

11.29

9.82

19.19

2015

7.03

-0.81

0.09

9.43

2016

1.28

9.64

16.37

7.10

2017

28.36

19.38

28.08

32.66

2018

-6.25

-6.33

-3.72

-0.96

2019

42.38

28.79

25.02

37.83

2020

39.96

16.16

9.59

47.57

2021

0.96

-0.07

0.79

-1.96

Overall

305.67

194.83

306.88

725.39

Table 1

See also

GuruFocus' search bar allows users to search for a specific stock, guru, article or webpage. To access the Model Portfolios page, try searching for "Performances."

Disclosure: The author has no positions in the stocks mentioned. GuruFocus developed in December 2020 a new, modified version of the Buffett Indicator that includes the total assets of the Federal Reserve. The website has not applied the modified version of the Buffett Indicator to global markets as of this writing but plans to.

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