Global portfolio

Buying a cheap stock might be very rewarding over a long time frame or from the point when the market discovers the stock. The strategy displayed here tries to exploit this time handicap. The basic idea consists of buying cheap stocks that are already on the move, avoiding the long wait for an increase in price. Six portfolios have been created at an average interval of four months since 2001 and all of them have beaten the MSCI World Index by a big margin ranging from 16 per cent to 25 per cent. This strategy tries to find value stocks worldwide with rising price momentum and consistency, as well as growth characteristics all at once. The optimisation is achieved through two tools. One indicator tries to limit the maximum annual drawdown from a high price while the other is a risk adjusted ratio called the information ratio, which helps to search for consistency in performance. The information ratio versus the benchmark is the ratio between the excess return and the tracking error. The comparison chart shows the excellent and very consistent performance of the selected stocks. The portfolio has underperformed the benchmark since the March low, which is not surprising because of the defensive nature of the portfolio, but it should continue to outperform over time. In future issues of PWM the ongoing results of these strategies will be reviewed. For further information on Brainpower’s professional portfolio analysis software, please visit www.brainpowerweb.com or contact Alan Parmenter on +44 (0) 20 7392 7108