TSX 60 Filtered for Value: How did it do?

One year ago, I decided to find out whether or not value investing is worth the effort. In order to avoid look-ahead bias, I constructed a portfolio and watched it for a year. I chose the TSX 60 as a starting point and chose the 16 companies that presented the best value metrics. In order to be able to evaluate my original choices as fairly as possible, the portfolio was not rebalanced over the course of the following year.

Six months ago, I checked in and found that my portfolio was doing fine. It was ahead of the TSX by 1% and ahead of the Claymore Dividend ETF by 3%. I would prefer to own 16 individual stocks rather than an ETF because, given a discounted trading cost (eg. $10 per trade = $160) and a large enough account ($50,000), it would be cheaper than paying the MER (eg. 0.50%) on the ETF over the course of a year (in this example, $250).

As of today, the TSX 60 “filtered for value” portfolio is up 24.5%, while the TSX is up 17.4% and CDZ, the Claymore Dividend ETF is up 19.1%. One of the things I learned is that yes, choosing stocks based on value criteria should produce a superior portfolio for a time frame of one year. I also learned, however, why choosing the 16 most attractive stocks makes far more sense than choosing the single most attractive stock. (Note: unfortunately, Google seems to have only provided the capital gain, ignoring the return due to dividends.)

Name Symbol Cost basis Mkt value Gain Overall return
ARC Resources Ltd ARX $9,875.00 $12,410.00 $2,535.00 25.67%
EnCana Corporation ECA $3,878.80 $3,543.60 -$335.20 -8.64%
Enbridge Inc. ENB $4,968.00 $6,310.00 $1,342.00 27.01%
Husky Energy Inc. HSE $10,106.00 $10,580.00 $474.00 4.69%
Cameco Corporation CCO $3,858.80 $4,370.70 $511.90 13.27%
First Quantum Minerals… FM $4,026.25 $10,556.25 $6,530.00 162.19%
Teck Resources Limited TCK.B $3,946.25 $6,300.00 $2,353.75 59.65%
BCE Inc. BCE $9,948.50 $12,476.75 $2,528.25 25.41%
Bank of Montreal BMO $10,114.50 $10,739.75 $625.25 6.18%
Royal Bank of Canada RY $6,094.00 $6,577.20 $483.20 7.93%
BIOVAIL CORP BVF $4,042.00 $6,552.00 $2,510.00 62.10%
Manulife Financial Corp. MFC $6,962.50 $7,650.00 $687.50 9.87%
Canadian National… CNR $3,975.65 $5,012.80 $1,037.15 26.09%
Canadian Tire Corp. Ltd. CTC.A $3,996.25 $4,626.00 $629.75 15.76%
Shoppers Drug Mart Corp. SC $3,960.40 $4,800.00 $839.60 21.20%
TransCanada Corporation TRP $9,980.80 $11,645.20 $1,664.40 16.68%

I weighted each stock according to its attractiveness. You’ll notice that I was right to give EnCana a small weighting, but Husky had a large weighting and produced a small return, whereas First Quantum Minerals had a small weighting but produced the best return by far. I couldn’t have predicted that.

I believe that it is worthwhile to apply value criteria to stock selection, but I also believe that it is impossible to predict overall market direction, which explains why professional money managers will almost always diversify across sectors, in similar proportions to their benchmark.

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