As some of you know my Global Leaders Portfolio (GLP) has pretty strict rules of picking stocks and other assets to it that alltogether are called Smart Investing Approach (SIA).
As for stocks specifically I use a set of 5 points that I call SIAScore. Here they are:
S1: growing sector 1pts/0pts,
S2: incumbent or prospective global leader 1pts/0pts,
S3: growing or stable wide margins (40%+ gross; 3yr avg) 2pts/0pts,
S4: Net Debt/EBITDA <1.5 (last 3 ended FYs) 2pts/0pts,
S5: above-average cash flows (FCF/MktCap (last 3 ended FYs) > S&P500 Dividend Yield or US 10yr Treasry Yield (higher of the values)) 2pts/0pts;
MAX TOTAL SCORE: 8pts MIN TOTAL SCORE: 0pts MIN SCORE TO QUALIFY: 4pts
As you can see the first two points are qualitative in nature, whilst the latter 3 are purely quantitative an that’s why they weigh more in the aggregate scoring system. SIAScore by nature naturally picks stocks with more Growth characteristics, but that not a rule. Some of the portfolio members have a lot of Value characteristics too. Let’s take $BIIB (Biogen Inc) or $NVS (Novartis ADR) for instance. Full portfolio can be found here: www.etoro.com/people/globalalphas/portfolio
Risk control is crutial for GLP. The portfolio is a total return one aimed at bringing stable long-term returns while avoiding big drawdowns. Key to this is:
1. Top-down macro perspective that maximizes being exposed to the right assets in the right proportion at the right point in time. This is determined by the Enhanced Aggregate Spread model by Dr.Robert Dieli that i implemented as a tool in asset allocation decisionmaking process. The whole philosophy is described in details here: globalalphasearch.com/forecasting-economic-cycles-made-easy/
2. Appropriate diversification both bewteen assets classes (always exposed to 4 major assets – equities ($SPX500, $NSDQ100), Treasuries ($TLT, $SHY), $GOLD and cash) as well as withing the equity part of the portfolio (15-20 names that fulfill SIAScore). The effect is tromendous risk characteristicks of the portfolio: Sharpe Ratio 1,9ish (above 1 is great) Sortino Ratio 4ish (above 2 is great)
𝗔𝗻𝗱 𝗵𝗲𝗿𝗲 𝗰𝗼𝗺𝗲𝘀 𝗥𝗼𝘆𝗮𝗹 𝗗𝘂𝘁𝗰𝗵 𝗦𝗵𝗲𝗹𝗹
Pretty surprising, given that $RDS.B (Royal Dutch Shell Shs -B- Sponsored American Deposit Receipt Repr 2 Shs B) is not necessarily fulfilling SIAScore’s point #1. It’s a heavy-duty oil industry member. Not really a fisrt choise for SIA.
Royal Dutch has a lot of Value characteristics and within my efforts to keep the GLP’s eToro risk score (currently 4) under full control I continue further diversification into some Value names (like the $BIIB and $NVS mentioned above).
$RDS.B current valuations are very appealing*:
12m forward P/E: 9,6
PEG Ratio (5yr exp): 2,3
*data from Yahoo finance/Refinitve/EDGAR
Royal Dutch had a tumutlous year ion 2020, as did the whole oil industry. But as the economic activity comes back to normality the future is more brigth for stocks like this one as well and one can expect a comeback to normal profitability.
SIAScore for $RDS.B :
S1: 0 pts
S2: 1 pt
S3: 0 pts
S4: 2 pts (with use of EBIT instead of EBITDA)
TOTAL: 5 pts
So $RDS.B still fulfills SIAScore requirements!
Disclaimers: None of the ideas, views and thoughts presented here shall ever be taken as a recommendation to buy or sell stocks,bonds,FX,commodities or any other financial instruments as stated in REGULATION (EU) No 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC or the Polish Act of 10 February 2017 amending the act on trading in financial instruments and some other acts. The article is for educational reasons and purely presents private views of the author, thus the author shall not be held accountable for any losses of a third party resulting from any potential trading activities in any instruments, both specifically or by category of assets. The author uses his best knowledge and data from sources believed to be reliable, but makes no representations as to the accuracy of the data.Full Disclaimers&Liability Limitations page.