In today’s post I’ll update the second quant investing system, the utilities sector value system. In my last post I updated the consumer staples value system. The utilities sector value system can be used on it’s own or combined in a portfolio with the consumer staples system. Lets get right to it.
The utilities value system is somewhat more complicated than the consumer staples value system. It uses a composite value metric as I discussed in the original post on the system. The composite value metric is the average of P/E, P/B, P/S, P/FCF, EV/EBITDA, and SHY. In that post I described in detail how to implement the system in some of the basic screeners. In a more advanced screener like P123 the implementation is much easier. The system ranks the stocks in the utility sector by the composite value score and then buys the top 25 stocks on an equal weighted basis. Hold for one year. Repeat. First, lets see how the utility value system has performed out of sample. Performance below is from Jan 1, 2009 through Dec 31, 2014. Data is from Portfolio123 as usual.
Impressive. The system beat the SP500 over the bull market period. Not as good as the consumer staples value system but still impressive for investing in a traditionally conservative sector. What is even more impressive is that the value system beat its closest benchmark, the SP1500 utilities sector by a long shot, 18.36% for utility value vs 8.64% for the SP1500 utility sector. Also, for those keeping score, the XLU sector ETF, which is a large cap implementation of the utilities sector, returned 12.9% over the same period.
Now let’s see which stocks the utility value system would pick if we ran the system today. First, my usual caveat emptor. 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.
Below are the top 25 stocks in the utility value screen as of the close of 4/23/2015. I also listed the screen parameters used to rank the stocks (except SHY which is just off screen).
That’s it. That’s the updated utilities 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 enhanced dividend yield portfolio.