The Buffoonery Portfolio U.S. - May 2006
I am running two parallel portfolios in my efforts to beat the market by randomly selecting six stocks and comparing their return to a benchmark index. One tracks the Canadian market, one tracks the U.S. market.
I selected my six U.S. stocks over a year ago by using a random number generator applied to the stocks comprising the S&P 500. The six that were picked were Alcoa (AA), Ball Corporation (BLL), Best Buy (BBY), Dana Corp. (DCN), Kroger (KR) and Xerox (XRX).
My benchmark is the Barclays iUnits traded on the TSX under the symbol XSP.TO. This exchange-traded fund tracks the performance of the S&P 500, but is denominated in Canadian dollars. Therefore, its return is a blend of the "pure" S&P 500 and the "pure" Canadian dollar performance in relation to the U.S. dollar.
Thirteen months later, how are they doing?
The XSP.TO fund last traded at $16.25 and is up 6.80% ignoring dividends. The fund has made no distributions since the purchase date so its return is 6.80%.
On the other hand, the six stocks are down an aggregate 13.80% over the past 13 months. The overall return (loss) masks some real variance among the six (note: all returns are Canadian dollar returns):
Alcoa is up almost 2%.
Best Buy is up a solid 38%.
Ball is down 17%.
Dana is down a whopping 95%!
Kroger is up 14%.
Xerox is down 15%.
These returns give some interesting food for thought. First, Dana Corp. It had a little earnings restatement problem last fall, then filed for Chapter 11 in early March of this year. It makes auto parts, and the auto parts industry is in a bit of a tailspin at the moment. As a result, nearly one-sixth of my hypothetical portfolio was wiped out when it went down.
Second, the Canadian dollar has continued to strengthen against the U.S. dollar over the last 13 months. It was at 81.1 cents for one U.S. dollar on April 12, 2005. Now, it trades at 90.13 cents per U.S. dollar - an 11% increase over that period. That increase, in turn, reduces my Canadian dollar denominated returns by 11%. But remember that it reduces the returns equally on both my benchmark investment (because it is a Canadian dollar investment) and on my six stocks (because I bought them with Canadian dollars).
As an aside, I keep track of my portfolios on Yahoo Finance Canada. Although it properly tracks the Canadian dollar value of each holding, it does not properly calculate the returns - the returns are the U.S. dollar returns which do not factor the currency differential into account. So watch out if you're using Yahoo to track your percentage gains and losses - you have to adjust for the currency factor on any non-Canadian denominated investments.
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