Quant investing: consumer staples value system update

I’ve received a fair amount of interest in providing an update to the quant portfolios I’ve presented on the blog in the past. For those trying to implement the portfolios themselves it can provide a good check on their implementations. For newbies, it is a good re-intro to the power of quant systems. In this post I’ll start with the consumer staples value system.

I introduced the consumer staples value system in this post. It is one of the easiest quant systems to implement. It simply limits the stock universe to the consumer staples sector, ranks the stocks by shareholder yield, and then buys the top 25 stocks equal weighted. Hold for one year. Repeat. It is one of the best performing quant strategies on a risk-adjusted basis. And if we look at out of sample performance, i.e. since the book What Works on Wall Street was published, it also has done very well. Below is the system’s performance vs the SP500 for the current bull market period. I use Jan 1, 2009 through Dec 31, 2014. Data is from Portfolio123 as usual.

Not bad. 13.3% per year of alpha, a sharpe ratio of 1.64, and a max drawdown of 21%. It did not under perform the SP500 in any of the 6 years. There is power in simplicity.

OK, so which stocks is the system telling us to buy if we ran the screen today. FYI, my preference is to run these systems at the beginning of the year vs any other time of the year. The quant systems work in all months tested but their effect and performance has been more powerful in January than any other month. Just like the January effect for the general stock market. These are not investment recommendations at all. I have also not checked the stocks for compliance to the quant system rules I’ve discussed before. This is just an example.

Here is the list of the top 25 consumer staple stocks ranked by shareholder yield. The top 25 equal weight portfolio has a shareholder yield of 8.1%

That’s it. That’s the updated consumer staples value portfolio. You can enter the stocks in to a simple free portfolio tracker, like the one at finviz, and see how the portfolio does over the next 12 months.

In the next quant post I’ll update the utilities value portfolio.