Reviewing the TSX 60 “filtered for value”

On July 2, 2010, I looked at the TSX 60 to find the stocks that appeared the most attractive. My goal was to see if owning the resulting 16 stocks, which is less costly than owning an index ETF, would outperform an appropriate index. In order to make the comparison, I entered the trades into Google Finance, using the price at the close of July 2, 10 (the date I published my picks), the weighting I suggested (leaving 1.9% cash, due to using round numbers of shares) and deducting a $10 commission per trade. The results are encouraging.

When comparing my 16 stocks to the TSX Composite, we can see basically equivalent performance over the six-month period. I would add approximately 1.8% to the performance of my stocks for the dividend yield. It is still evident, however, that six months is too short a period to really judge the performance.

When comparing my 16 stocks to the Claymore Dividend Index (since Google didn’t have data for the TSX 60 index back to July),we see something interesting. While the Claymore fund beat my stock picks for the first four months, my stocks have done better over the last two months. This is due to the performance of specific choices, and really nothing more than noise. I wouldn’t be surprised if the culprit were MFC. Again, performance should be adjusted for dividends, adding 1.8% to my picks and 2.3% to Claymore (where the performance is already net of fees).

So far, I’m pleased that it’s not difficult to replicate the performance of the TSX 60 while owning fewer than 60 stocks and keeping costs lower than an ETF. I do notice that the weighting given to each stock has a strong influence on the outcome, and there may be a better way to determine the weighting rather than based on the current yield, such as the current P/E. This portfolio (now entered in Google for easy comparison) deserves to be revisited in another six months.