Momentous Value: My Stock Rank Portfolio

Monday, Mar 06 2017 by
27

Following Ed Croft's post "StockRanks return over 100% in 4 years... how have you got on?" on 15 February, I noticed a few comments which asked investors who use the Stock Ranks, to publish their screens and rationale. Therefore, I want to share my own Stock Rank screen with the investing community here at Stockopedia.


Value & Momentum, which has been described as the “Holy Grail” of investing, is an investment style I follow very closely. Investors which have read James O’Shaughnessy’s, Predicting the Markets of Tomorrow will be well aware of the astonishing risk-adjusted returns these strategies can yield.

Combining this strategy with high-yield, dividend paying stocks and Stockopedia’s very own Stock Rank, I would hope to replicate marketing beating returns in my personal portfolio.

Introducing the Momentous Value portfolio, which you can follow on Stockopedia as a fantasy fund.

http://www.stockopedia.com/fantasy-funds/momentous-value-6803/

My investment criteria is simple, yet combines the most significant factors in investing into one.

Market Cap: >= £20 Million

Exposure to micro-caps should not be overlooked simply because they’re hard to trade. In fact, James O’Shaughnessy designed the Tiny Titans screen because he uncovered significant outperformance in this area of the market. This is why I have chosen to allow these tiny caps into my portfolio.

However, there must be cut of point and I have placed this at £20 million. Equities which trade at low market caps tend to be horrifically illiquid and very misleading from a momentum point of view.

Value & Momentum (VM) Rank > = 90

This probably goes without saying in a Value & Momentum fund but by selecting the top 10% of UK equities, I’m likely to put myself in the best possible position for finding alpha. What I like about the VM rank is that blends a number of value and momentum metrics together, rather than relying on a single value (P/S) or momentum (RS 1Y) metric like James O’Shaughnessy would suggest.

Stock Rank (QVM) >= 90

Now, I’ve included a QVM rank above 90 because this should broadly rid the portfolio of outliers. The typical VM rank can throw up poor quality stocks from time to time. For example, at the time writing Legal & General (LON:LGEN) is ranked as one of the highest VM stocks on LSE and boasts individual value and momentum scores of 92 and 94 respectively.

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Legal & General Group Plc is a holding company. The Company, together with its subsidiaries, transacts life assurance and long-term savings business, investment management and general insurance and health business. The Company’s segments include: Legal & General Retirement (LGR), Legal & General Investment Management (LGIM), Legal & General Capital (LGC), Legal & General Insurance (LGI) and Savings. The Company operates its businesses in the United Kingdom, the United States and other countries across the world through its subsidiaries and associates. The Company offers products, including annuity contracts; longevity insurance contracts; lifetime mortgages; index fund management; active fixed income and liquidity management; solutions and liability driven investment (LDI); active equity; investment strategy and implementation; direct investments and structuring; pensions (individual and corporate); endowment policies, and participating contracts. more »

LSE Price
246.7p
Change
1.1%
Mkt Cap (£m)
14,559
P/E (fwd)
7.5
Yield (fwd)
7.5



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6 Posts on this Thread show/hide all

Blissgull 7th Mar '17 1 of 6
2

Best of luck with that BH1991.

8.4% over three months is clearly a good return, although by coincidence the FTSE100 is also up exactly 8.4% over the last three months as well.

Are you sure of your figures including dividends? You say 11.5% including dividends which suggests 3.1% in dividends. That sounds a lot for 3 months.

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BH1991 7th Mar '17 2 of 6

In reply to post #174464

Hi Blissgul,

I'm tracking the dividends through Google Finance and it suggests I would have received dividends from Games Workshop, NewRiver REIT, Gateley and De La Rue at roughly 5% yield.

I will double check whether Google Finance is providing me with accurate figures and amend if appropriate. 

Ben

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ISAallowance 7th Mar '17 3 of 6
1

Hi BH1991

For Legal and General, I don't think it's useful to use ROCE for companies that borrow other peoples money to make a return (banks, insurers), ROE is more appropriate I think and Legal & General (LON:LGEN) has a consistently good ROE in the mid to high teens for as long as Stockopedia goes back (2011).

(Legal & General (LON:LGEN) is one of my core holdings)

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Oscar Nimo 21st Jun '18 5 of 6

Any update of your performance since this post?
That would be interesting to have some.

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justinian 31st Aug '18 6 of 6
1

The thing about making data more widely available is that I would imagine many people are already replicating this particular portfolio, at least in part. QVM>90, VM>90, sorted by dividend yield, including smaller cap stocks. Basically, it ticks a lot of well known boxes.

You should be aware that 'Quality' does not particularly work well with financial services firms due to the size of their balance sheets. I wouldn't exclude Legal and General or for that matter Lloyds on that reason alone.

You note the exclusion of dividends in performance, my main concern is regarding the costs of trading. They always seem to be so much higher in real life trading, so a key for me is to trade as little as possible. VM<85 seems like it might trigger quite a lot of needless sales, particularly if that criterion is run on a continuous basis. Personally, I moved to an annual review, at the time I add my ISA contributions - according to the backtests, it doesn't seem to make that much difference. And if a stock remains above ANY of the key discriminating Ranks (according to the backtests available), QVM, VM, QV etc., then I will afford the stock a stay of execution for another year. I operate no stops aside from the fact that I also run a longer term Bull/Bear indicator which will trigger me going to cash/short across the entire portfolio.

The other thing I've mulled over is variability of results due to the chance of particular stock picks. To counter this particular issue I've thought about using spread betting to purchase EVERY stock in the selection criteria (no stamp duty nor commissions but there is still the spread and the holding costs). Copying the approach of the investment trusts, one could boost returns a little by increasing leverage to say about 1.3x to offset the holding costs.

Another area I've wondered about, is whether the sectors one chooses should be altered according to what one considers the stage of the stock market. So, for a late Bull, perhaps one should avoid anything related to property and banks. So rather than just having individual stocks and historic stock ranks, I would in this case be running a three tier system....Bull/Bear in/out decision, Bull market stage Sectors decision, finally Individual Stock decision.

Personally, I believe this to be doable, because I'm pretty certain many of us go through some sort of subjective decision making like this anyway....e.g. I'm sure a lot of users of Stockranks will have been excluding builders and estate agents for a while now, regardless of their marvellous scores and profits. So it would be a matter of formally systematising this thought process.

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