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Jelly Roll Capital Equity Research |
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Market Analysis, Education, and Wall Street-Quality Stock Reports |
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Performance Review of the “Top 25” |
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Every month or so, it is worthwhile to do a performance evaluation and see how the top stock picks have performed. For this update, we are going to look at all four lists so far - March, April, May, and June, and compare the returns from the top 25 to the S&P 500. As our archive of recommendation lists grows, we can a better perspective on whether the quantitative model that generates them is working - and the underlying, deeper question of whether or not a fundamental-driven model can outperform the market over short to intermediate time frames. Because each “Top 25” list is the monthly recommendation, we will benchmark them over a one month time frame for now, until time allows us to be able to make comparisons over six months, one year, etc. Returns are gathered by taking the closing price on the last trading day of a given month and comparing it to the opening price on the first trading day of the month. And the results are… The March list (working on a shortened schedule due to a late release) bested the S&P 500 by more than two full percentage points. Copper miner Freeport McMoRan (FCX, Stock Report) was the big winner in this month, outdistancing the S&P by a full 17%. Coal miner Alliance Resource (ARLP, Stock Report) also joined in the basic materials rally, rising more than 8%. Much-maligned African oil driller Vaalco Energy (EGY) lagged by about 11%, as did chemicals company Georgia Gulf (GGC), the latter of which has since rebounded nicely. April’s top stocks had to keep pace with a blistering market and deal with an exceptionally poor entry point on AMREP (AXR), which peaked on the opening day of the month and plunged over 20% in the following weeks. That loss was partially offset by homebuilder NVR, which topped the market by 18%. No other real break-away stocks emerged during the month however, leaving our portfolio to nip the averages by just 0.2% for the month. One additional small bright point from April was the first appearance made by Global Industries (GLBL, Industry Brief) on our Top 25 list; GLBL is a 50% winner so far. May was another relatively strong month for the market, but the Top 25 list for the month again bested the averages by a full two percentage points. Freeport (FCX) and Global (GLBL) returned 17.5% and 14.5% respectively, but three other stocks did even better: internet access and content provider United Online (UNTD) returned 19.4%, oil major Marathon (MRO) returned 22.4%, and photography studio manager CPI Corp. (CPY) turned in a staggering one month gain of 38%. Laggards were Vaalco (EGY, yes, again) and Aspreva (ASPV, Stock Report), both of which fell about 11%. The market finally hit a rough patch in June, with the S&P 500 dropping about 1.5% - not that you were warned about that in a pre-vacation missive. A tough entry point on NVR led to a 13% drop in that stock, AMREP (AXR) was once again a laggard, and an unsatisfactory drug trial at Aspreva (ASPV) led that stock to drop another 14%. Losses there were offset by strong showings from Ceradyne (CRDN), Western Refining (WNR), and GLBL among others. All in all, the Top 25 portfolio beat the market’s performance by another 0.36% to keep the early record perfect. While the Top 25 will undoubtedly lose to the market eventually, the cumulative outperformance comes to 4.61% in just under four months - or enough to pay for the 2/20 management fee and performance incentive at the hedge fund. Keep in mind as well, the quant model is only the start; the real value-added work comes in identifying the GLBLs and FCXs and avoiding the AXRs and EGYs. You can also see the newest Top 25 update for July. |
