Barron's Roundtable - New Picks and a Mid-Year Review

Barron’s most recent issue provides new picks from the Roundtable analysts for the 2nd half of 2011, some of which are highlighted below.

Barron’s also provides a scorecard for the picks made back in January 2011 but the returns do not consider dividends and don’t compare against appropriate benchmarks (small cap vs small cap index, etc.).

Below is a summary of the performance of nine of the Barron’s roundtable participants for 2011, and where possible, performance of their 2010 picks.

I’ve also highlighted two of the analysts – Oscar Schafer and Meryl Witmer, and provided more detailed information on their most recent picks and the January 2011 picks.

Copycat Portfolios: Mid Cap Fund Manager's Top Dividend Stocks Yielding 4%

An article in Barron’s this weekend highlights some recent research about the performance of copycat strategies that track and invest in the largest stock holdings of successful fund managers.

Here is a key quote from the research: “A team led by University of Maryland finance professor Russ Wermers reports that you can beat the market by four percentage points a year, using a technique that systematically harvests the best stock selections from the fund industry.”

Of course there are thousands of fund managers and a multitude of strategies to consider.

I have selected an exceptional manager, Nicholas Equity Income Fund, to track based on these three key requirements: (1) A proven long-term manager that generates alpha; (2) an income focused strategy that generates high dividend yields; and (3) a mid-cap market focus to provide investors with some additional diversification beyond the typical large cap dividend champions.

Largest Fund Manager's Top 10 Dividend Stocks Yielding a Healthy 4.8%

The American Funds mutual fund family continues to be one of the dominant fund managers despite some recent performance issues. It claims 7 of the world’s largest 15 mutual funds with those funds holding over $600 billion in assets.

Because American Funds now updates holdings every month, it is now possible for investors to follow and consider the funds’ top investments for their own portfolio.

In addition we can filter and focus on the highest yielding positions. We are also going to track these picks over time to see if investors can benefit from tracking the largest manager.

Here are the top 10 holdings that each yield over 3%, aggregated across six of their largest funds, as of 2/28/2011.

How Are Picks from Abby Joseph Cohen, Archie MacAllaster and Mario Gabelli Performing?

Abby Joseph Cohen, Archie MacAllaster and Mario Gabelli provided their top picks for 2011 in the three Barron’s Roundtable issues in January.

All selected primarily large cap stocks, with Gabelli choosing a handful of small cap stocks.

Since it has been a few weeks since the picks became public, it might be a good time for investors interested in large cap stocks to take another look at these picks.

Here is a performance update for Abby, Archie and Mario after one month.

Income Opportunities in 2011: Updating Bill Gross's Long-Term Performance

In response to my previous article “Bill Gross’s Significant Income Opportunities in 2011”, one reader suggested that I take a look at Gross’s 2007 and 2008 picks since he felt like they performed poorly.

I had gone back to 2009 and 2010 in an effort to give readers a sense of Gross’s track record, which has been impressive.

The reader was correct – 2007 and 2008 were not stellar – but Gross’s picks actually did beat the appropriate LikeAssets benchmarks and the S&P500.

The hard part was the wild ride an investor experienced along the way.

First a brief update on the performance of the 2011 picks PTY and NLY.

Bill Gross's 2011 Fund Picks - Alternatives to Consider for Income Investors

In a previous article I provided some analysis of Bill Gross’s picks, historical (2009/2010) and current ones for 2011 provided in Barron’s Roundtable article.

One of Gross’s picks for 2011 was Pimco Corporate Income Fund (PTY), a closed end fund that uses leverage to generate investment income and maintain high dividend yields for investors.

Once Gross’s selection became public on Monday, PTY jumped, and now the premium to NAV is over 10% – a stiff entry price for investors to chase.

So I thought I would take a look at the other PIMCO closed end funds also managed by Bill Gross and team, and see if there are some alternatives to PTY.

Bill Gross's Significant Income Opportunities in 2011

The first installment of Barron’s Roundtable appeared in its January 22nd issue of the magazine.

Top investment strategists once again offered their market outlook and specific picks. One of the better known strategists is Bill Gross from PIMCO.

In 2010 Gross’s income oriented picks provided the highest absolute return and beat the LikeAssets benchmark by a greater margin than any of the other top nine strategists (this comparison excludes strategists’ picks not available on U.S. stock exchanges).

Gross’s 2009 performance also scorched the LikeAssets benchmarks with his income picks.

Income seeking investors might want to consider Gross’s 2011 picks given his track record to date, but with a couple of cautionary notes.

Barron's Stock Picks Performance and Performance Report Cards - Barron's vs Fool

Barron’s Stock Picks Consistently Beat the Right Benchmarks. Don’t be Fooled by Fool’s Report Card

Barron’s has just published their own performance report card in their weekly magazine.

This offers a good opportunity to see how Barron’s has done and to consider some of the industry issues with performance reporting and benchmarking.

Barron’s excels at leading the market in terms of accountability. Stock picks are posted clearly and are always available on their site. Barron’s also attempts to assign …

Reviewing 2010 Picks of Morningstar and Motley Fool

Motley Fool knocks it out of the park +68%, Morningstar knocked out with -20%

With the new year just beginning, it is time to look back at the top 2010 picks made by the gurus. In previous posts I have discussed performance of the top picks for 2010 made by Fortune and Forbes.

LikeAssets has also analyzed the performance of many other research and financial websites.

Below I present a couple more examples – Morningstar’s Ultimate Stock Picking team and their top picks to consider for 2010, and Motley Fool’s Rick Aristotle Munarriz with 5 Stocks that Should Beat the Market in 2010.

Tracking Fortune's Top Ten Stocks for 2011

Majority of Picks are Small Caps

On December 6th, Fortune Magazine published its top ten stock picks for 2011. The theme is growth, and the goal was to pick growth stocks with below-market multiples.

Fortune notes that the ten stocks “are expected to bolster their profits an average of 61% next year – vs 14% for the S&P – and yet they trade at an average of 12 times next year’s earnings, vs. 13 times for the S&P”.

But there is an issue with this comparison – only 3 of the picks are in the S&P 500 – the picks are primarily small caps and should be compared accordingly as Fortune promotes its efforts to beat the S&P 500.

LikeAssets is now tracking the picks, and the portfolio is currently +4% against the LikeAssets benchmark which includes a blend of small and large cap indexes. Here is how the picks were asset classified:

Goldman's Picks - Reviewing Performance of 2010 Software Sector Picks

Whipped the benchmark with a LikeAssets score of 31

There are a lot of analysts now making their calls for 2011 investments. Last December Larry Dignan did a brief mention of Goldman Sach’s Software Sector picks for 2010. How did the Goldman picks pan out?

LikeAssets allows me to analyze how the picks did against their appropriate asset class benchmark, as well as an industry benchmark. I’ll be looking at this as I consider the Goldman picks for 2011.

Goldman’s 2010 Software Sector Performance Review

Goldman’s highlighted three primary themes driving their Software Sector investment picks: (1) PC and Server upgrade cycle; (2) Virtual desktop and growth of the cloud; and (3) M&A activity would step up.

Here are the picks (% allocation started equally weighted in 12/14/2010) and the associated asset allocation used for determining the LikeAssets benchmark:

A Review of 2010 Investment Guide Picks – Fortune vs Forbes

The score is Fortune 7, Forbes -5

It’s year end again, the holidays are upon us and so are the 2011 investment guides created by every one of the major financial media players. Before you look at their 2011 picks, let’s look at LikeAssets’ analysis of the picks from the 2010 investment guides. Not only did we calculate the returns, but LikeAssets calculated the alpha by using the appropriate benchmark for each investment selected. This post examines the performance of the picks in the 2010 investment guide issues put forth by Forbes and Fortune. The analysis assumes an investment of $1000 in each pick made when the articles became available on the web in late 2009.

It is interesting to note that while the ratio of losing picks/total picks was similar for both (Fortune 24%, Forbes 29%), there was a large gap in performance and alpha. With Forbes you got more winners than losers but overall, but you still would have been better off in passive index funds that tracked the Forbes picks. Here is how the picks were asset classified…

Safety in Dividends?

Where should investors look for income when traditional sources yield so little, or nothing at all? Dividend stocks have been cast as an alternative, but many investors remain nervous about fulfilling fixed income allocations with stocks, and rightfully so. With that in mind I set out to see what dividend yields I can receive while playing it safe. For me safe means a low probability of near-term dividend cuts, the ability to maintain or grow the dividend whether the economic scenario is deflation or inflation, and a stock price that is a bargain.

Dividend Cuts: Interest Coverage helps investors understand a company’s ongoing earning power and cash flow and measures the ability to adequately cover interest payments on debt. If Interest Coverage is tight (for me anything under 6X), the dividend may be at risk if there is a bump in the road. To play it safe, I wanted at least a 10X coverage level giving me comfort that a dividend cut is not likely near-term. For additional analysis beyond the screener, consider looking at the full debt service coverage (which includes scheduled principal payments as well as interest) and the mix of fixed and floating rate debt. A higher level of fixed rate debt means that future interest payments should be less likely to spike if interest rates jump.

Know When to Dump a Losing Fund

A recent post from MarketWatch by Chuck Jaffe, ‘Know When to Dump a Losing Fund’, highlights the importance of measuring your holdings against the right benchmark. Chuck notes that Vanguard finally changed the manager for their US Growth Equity Fund (VWUSX) after a decade of underperformance. In the words of Chuck, “over the past decade, US Growth has been slaughtered, turning a $10,000 investment into $4,850”.

Check out VWUSX’s performance against an appropriate benchmark at LikeAssets. The fund has continuously underperformed, with LikeAssets scores ranging from -8 to -15 in recent years.

With LikeAssets, it’s easy to monitor your investments against the right benchmark. Give it a try for free. Enter one or two of your favorite investments in seconds and start monitoring today.

You can now find LikeAssets in the Seeking Alpha App Store!

Today at Finovate our partner, Seeking Alpha, unveiled their new app store which includes a new application from LikeAssets.

On October 10th, the app store will go live to Seeking Alpha’s audience of investors, advisors and contributors. Our application has some exciting new features, such as automated download of your brokerage data with return calculations, a choice of benchmarks, asset classification, and more.

We’ll be offering two versions of the application – one that’s completely free, which offers easy portfolio management and accurate return calculations, and a premium version that includes all of the powerful features that LikeAssets has to offer.

Check out the app store at Seeking Alpha starting on 10/10 and let us know what you think! We’ll be listening to your feedback and will incorporate some of your favorite new features into LikeAssets.com.

Helping investors understand alpha

There has been noteworthy discussion in recent articles about alphas and betas. It can get pretty confusing for an investor. Beta is a tool for measuring the sensitivity of the asset’s returns to market returns. It answers the question, “how much market risk are you bearing relative to the market itself?” A Beta of 1 means that the security moves pretty much in sync with the market and a beta of 0 means it moves independent of the market. Alpha provides a performance measurement of excess return over a risk adjusted market return (an appropriate benchmark, for example).

Roger Nusbaum posts about the alpha/beta debate and also refers to a post at The Capital Spectator which challenges the very existence of alpha, citing recent work done by John Cochrane from the University of Chicago. Roger lays out his case for why he still sees a world with alpha, but his post helps investors understand both arguments and become better educated on this critical topic.

Rating the Raters - a Closer Look at Morningstar Stock and Mutual Fund Picks

Who rates the raters?

I thought it would be interesting to take a close look at the picks made on Morningstar.com since the beginning of 2009. Morningstar offers both free and premium services. This analysis refers only to the free advice investors could obtain from the various columnists.

If an investor followed every Morningstar stock pick over the last year and a half, he would have scratched out a slight premium to the market return. However, the mutual fund picks failed to deliver any value above their benchmark indexes. This is surprising since mutual fund research is Morningstar’s bread and butter.

Stock Picks

• Out of 529 picks, 287 generated a positive return and 242 generated a negative return.
• Generated a total average return of 6% and a median return of 3%.
• 282 performed better than the LikeAssets Benchmark, and 247 performed worse.
• Outperformed the LikeAssets Benchmark, with an average LikeAssets Score of 4%.

Publisher and Author Results for 2009-2010 – Highlights, Surprises

As a LikeAssets user you can track the performance of your own investments and ideas, but you are also provided with a valuable service – the ability to track the most famous investing websites, magazines and blogs. Investing ideas from these sources always sound good when you read them, but which ones actually work over time? Are there any investment sites that consistently outperform the market?

When examining the picks from 2009-2010, there are some surprising results.

The top four performing publishers contain only one of the largest financial media sites – Barron’s. However, it is the picks from the print version that are beating the LikeAssets Benchmark by 13%, while those from Barron’s website are up only 4%. The other three top publishers are Stockerblog (24%), Ockham Research (20%) and Value Expectations (+15%).

Welcome to LikeAssets - Why you need a better benchmark

LikeAssets gives investors a brand new way to measure and benchmark investments. With people invested in so many different types of things, how do we compare them fairly?

In The Myth of Absolute Returns, Laurence Siegel says, “the universal goal of active management is to add value over a benchmark.” With this in mind, we’ve created the LikeAssets Benchmark, which allows our users to objectively compare the performance of leading publishers and authors as well as their own portfolios, ideas and strategies.

Investment websites are a big business. They impact millions of investors’ decisions. Why don’t people monitor their performance? It only seems fair.

Using indexes as benchmarks

In a Morningstar Investing Classroom course, novice investors are introduced to the concept of using indexes as benchmarks. Students are educated on how the most popular indexes may not be the most appropriate ways to measure their own investments.

“The Dow Jones Industrial Average (DJIA) may be the index that heads the stock market report on the evening news, but it’s rarely used as a performance benchmark for stock mutual funds… despite its widespread appeal, the S&P 500’s focus on large companies means it’s not representative of the entire market and smaller stocks’ performance in particular. It’s therefore inappropriate to measure a fund that doesn’t buy large companies.

“So what is the best index to use as a benchmark? Well, that depends entirely on what you’re comparing to it. Morningstar gives the reader some suggestions, “The Russell 2000 Index, which tracks smaller U.S. companies, is a good tool to evaluate many small-company funds, while the Morgan Stanley Capital International Europe Australia Far East (MSCI EAFE) Index, which follows international stocks, is a good measuring stick for foreign funds.”

Make sure your mutual fund is tracking its index

This great entry from My Money Blog takes a hard look at the Fidelity U.S. Bond Index Fund (FBIDX).

When the author began reading Morningstar’s FBIDX Analyst Report, he was surprised to learn that his investment had not been tracking its index.

“Although this fund was designed to track the Barclays Capital U.S. Aggregate Bond Index, it lagged that bogy by more than 3 percentage points from mid-2007 through the end of 2008.

“Lagging a benchmark by 3 full percentage points is a lot in the index world. Passive investors want low costs and low tracking error from the target benchmark!”

REIT picks deliver more risk than return

In September 2009, real estate gurus Bob Steers and Marty Cohen recommended their top REIT picks in Forbes Magazine. Although the picks have since generated an excellent 34% return, LikeAssets shows that this was no better than the underlying REIT index ETF that an investor could have purchased and held with less risk.

Read the article from Forbes »
See the portfolio on LikeAssets »

Dispelling myths of absolute-return investing

M. Barton Waring and Laurence B. Siegel take issue of the notion about “absolute return” investing, in their paper, The Myth of the Absolute-Return Investor. They review the problems with targeting absolute returns, examine their skepticism towards the practice, and explain the merits of benchmarks.

“Real added value comes only from relative-return investing.

“No wonder we could not sensibly define absolute-return investing: There is no such thing. The term is intended to capture investor attention by offering an intuitively appealing alternative to the disciplines required by relative-return invest- ing, but at the end of the day, it delivers beta returns plus or minus relative (alpha) returns. A sensible meaning for the term simply does not exist, unless one concedes that absolute return equals relative return, in which case there is no need for the term.

Quality blue-chip stocks were late to rally

A Barron’s article from August 2009 noted that many quality blue-chip stocks were left behind in a rally. A dozen of these companies, including Wal-Mart, AT&T and Microsoft, were hand picked to potentially rise 20% over the next year.

LikeAssets shows that Barron’s was right on the money - these picks hit the estimated 20% return. The portfolio also handily outperformed its benchmark, which represented a blend of many asset classes, ranging from US Large Cap to International Equities.

Read the article from Barron’s »
See the portfolio in LikeAssets »