Lowdiv TSX portfolio - tracking
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Thread: Lowdiv TSX portfolio - tracking

  1. #1
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    Lowdiv TSX portfolio - tracking

    I'm going to share my trades and track my new Lowdiv TSX portfolio. The goal is to outperform XIC (TSX Composite) long term while focusing on low dividend paying stocks and small caps, for a variety of reasons -- both tax & theoretical.

    I had an earlier version of this that turned tragic due to woefully bad diversification. The last portfolio spit out something that was entirely in tech & mining (two sectors). I feel that my approach was working well other than the diversification, and now I've hopefully fixed that.

    Is it real?

    Yes I actually buy these, but am waiting to see more solid track record before I put in larger amounts. Currently my portfolio is 8K, and it's a minority of my Canadian stock exposure. This is an experiment.

    Methodology

    Lowdiv just means that I apply my search and screening starting with the lowest or zero yielding stocks. Here's my theory: this is opposite to the common screening. Dividend paying stocks are extremely popular, and everyone is chasing the same high dividend stocks, making them a crowded trade. By searching among the lowest yielding stocks I think I'm working in a less crowded space, hopefully with more opportunities. Additionally I'm mostly dealing with small caps, unlike the usual large dividend large caps.

    A new portfolio is generated every 6 months. I have a long list of criteria that I follow, and one of them is diversification: the portfolio is mostly sector balanced, with a requirement of minimum 4 sectors and minimum 8 stocks. All stocks are equal weight. I also consider all commodity stocks as one sector (energy, materials, mining are all the same sector). All of this is to fight the tendency to pick up too many commodity-related stocks, since many pay no dividends.

    Performance

    I will track the performance over time by posting updates of this table. All figures are total returns, but I'll ignore fees on my trades.

    Start End Lowdiv XIC total Lowdiv relative
    2016-12-28
    ALL TIME Cumulative return


  2. #2
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    First update: portfolio created 2016-12-28, purchased today. Lots of sectors here, and 8 stocks as required by my rules:

    BYD.UN consumer
    CCL.B industrial
    DSG tech
    KXS tech
    KDX commodity
    ONEX finance
    QBR.B media
    WCN environment

  3. #3
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    Similar to your previous thread/portfolio, I think it's an interesting concept. Aside from the sector and # of stocks held, could you share your screening criteria to come up with the above 8 stocks? If not the specific criteria, perhaps generally what you hone in when choosing the stocks (e.g., value metrics, growth metrics, etc.). Why not use HXT as a comparative? Also, you mentioned a new portfolio is generated every 6 months. Does that mean there will be 8 new stocks every 6 months? How realistic is it to turn over the portfolio on this frequency? I ask because many dividend investors are long term holders of the stocks, so that they can capture the dividend income. They sell when the fundamentals of the company have changed. Perhaps rather than re-generating a new portfolio, you should have certain measures in place whereby if the stock no longer meets certain number of criteria upon your 6-month portfolio review, you sell and replace? In any case, just throwing some thoughts to consider...

  4. #4
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    Criteria: My screening is mostly technical, focusing on traditional "technical analysis" concepts like rising trends, attaining new highs, and being able to maintain reliable uptrends. It's primarily a momentum strategy, where the core concept is that a stock that is in a strong uptrend is likely to continue rising. I take the view that technical analysis isn't magic, but rather illustrates the viewpoints of many other investors: those investors believe these are strong companies with strong prospects, and so the prices rise. My experience has also suggested that I can do reasonably well at ditching a stock whose fortunes have turned. For example in my other thread you'll see that I abandoned VRX and PSG (now delisted) before their heaviest losses.

    Turnover: I've only been able to do limited backtests with my screening methodology but I think it gives some continuity between 6 month periods. For example the last portfolio, not shown as it was theoretical and without real $, was {CCL.B, WPK, ONEX, DSG, KXS, SJ, DOL, BYD.UN, WCN} and so six, i.e. most, of the stocks carry forward. I don't know if this holds true over longer periods.

    Only KDX and QBR.B are new

    Benchmark: I wanted to use TSX Composite vs TSX 60 as a benchmark because the TSX 60 (XIU, HXT) has all large caps and minimal overlap with the stocks I'm looking at-- mostly small/mid caps. But my portfolios overlap completely with the TSX Composite; they come directly from it. Since my portfolio is a subset of the TSX Composite, I thought this is a good benchmark.

  5. #5
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    One important change from my last thread is that I am focusing much more on technical analysis (the "quality" of the stock) rather than the dividend issue. In my last version, I was being stubborn about wanting stocks that pay zero dividends. This led me to make some poor stock choices among slim pickings. Upon the advice posted in that thread, I've now opened up the stock universe to the whole TSX Composite. I still prefer stocks with low dividends, but the dividend level is a secondary factor behind the technical screening.

  6. #6
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    For those familiar with my earlier thread, here's a summary of the changes in this new methodology:

    • Choosing from a much bigger pool of stocks: now entire TSX Composite instead of just zero dividend stocks
    • This gives me more choice and lets me pick better stocks
    • Technical analysis screening (stock "quality") is now primary, while low dividends are a secondary factor
    • Enforcement of minimum # of stocks and sectors. This diversification reduces risk, especially for such volatile small caps


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