Archive for October, 2015

Fundamental and Technical Ratings for Key Regions and Countries

Monday, October 12th, 2015
  • look at US, Eurozone, Japan, Emerging Markets, United Kingdom, Asia Pacific ex Japan, Switzerland, China.
  • China and Emerging Markets most attractive from a PEG perspective (if you believe the forward estimates, and can stomach to volatility)
  • AsiaPacific ex Japan has by far the highest yield, but is very heavily concentrated in commodity sensitive Australia
  • Technical views are somewhat mixed, but none are particularly attractive from the technical perspective
  • Earnings declines, past and estimated, portend negatively for S&P 500 price

Let’s take a quick summary review of fundamental and technical ratings for key regions/countries:  US, Eurozone, Japan, Emerging Markets, United Kingdom, Asia Pacific ex Japan, Switzerland, China.

The regions and countries were selected for market-cap significance within a world index of stock markets.

This table shows the market-cap weight of each within the FTSE Global All Cap Index. It also presents the relative size of the earnings of the markets within that index, generated by normalizing their P/E ratios.

The U.S. is still the giant relative to the others at 52% of market-cap and 44% of world earnings from listed companies.

China is a major economy, but with respect to listed companies, it is still a minor market at 2.1% of world index market-cap.


Here are several key fundamental valuation metrics for the securities representing those regions/countries (source Morningstar):


China and the emerging markets overall have the lowest P/E ratios (9.3x sand 11.1x), while the U.S. and Switzerland have the highest (17.9x and 17.5x). Note that Switzerland has a relatively small local economy, but is home to many global multi-national companies.

The U.S and Switzerland also have the highest price to cash flow (9.6x and 10.7x) while Japan, China and emerging markets have the lowest (3.0x, 3.4x and 4.5x).  Europe is relatively more attractive by P/CF  (5.4x) than the U.S. at (9.6x)

Japan has the lowest trailing yield at 1.17% while Asia Pacific ex Japan has the highest at 5.7%.

Additional note about the U.S (S&P 500).
According to FactSet the current estimate for Q3 earnings is negative 5.5% for the S&P 500.  While there are often some upside surprises, they expect a negative quarter in any event.  Q2 was also negative, so if Q3 is negative that would be the first time there were 2 year-over-year, back-to-back quarterly declines since Q2 & Q3 of 2009.

The current estimate (according to FactSet) for Q4 earnings is negative 0.4% for the S&P 500.  If that comes to pass, that would be 3 back-to-back, year-over-year quarterly declines.

This chart is for sequential quarterly earnings, presenting a difficult period for the index.  Recent declines plus the expected Q3 and Q4 declines look uncomfortably like prior periods that saw accompanying index price declines.  Analysts are predicting earnings growth in 2016, however.

(click image to enlarge)


With respect to Europe, Thomson Reuters reports that the STOXX 600 is expected to have an earnings decline of 4.1% for Q3 on an 8.3% revenue decline

Before you run off to buy EPP for the 5.57% yield, look behind it to the holdings.

Australia (commodity export based economy) is about 57% of the EPP holdings.  Within Australia, the top five holding are 4 banks and 1 mining company totaling about 1/3 of total assets.  Those five stocks yield from 5.5% to 6.6%.  Those are high numbers that call out for close inspection.  The banks may be highly leveraged to commodities, as is the country.

If you like the commodities, you may like Australia, and EPP — otherwise look elsewhere.

If we accept the forward P/E and forward earnings growth estimates published by Morningstar, we can calculate the PEG ratio for each security.

If we accept that PEG ratios under 2x are reasonable,  and under 1x are attractive; then China would be attractive (if you have confidence in the estimates); and most of the rest would be reasonably attractive (with Asia Pacific ex Japan and Switzerland being expensive at more than 2x PEG).

This table presents the current technical view of the same securities.  The ratings are from StockCharts (John Murphy), BarChart, Market-Edge, and from our own 4-factor technical rating.


None of the securities is strongly attractive technically at this time, and none are moderately attractive by consensus of the four ratings sources.

Note: a description of each rating approach is located at the bottom of this article as a post-script.

The StockCharts (source: subscription) data is based on indicators covering the last 60-90 days of daily data.

The Market-Edge (source: Schwab) service does not describe their decision tools, but says the time horizon for their ratings is 30-90 days.

Barchart (source: free site) data is based on indicators covering the last 7 to 100 days of daily data.

Our QVM 4 factor technical rating is based on the last 10-12 months of monthly data.

The following monthly charts are for the QVM rating method.

The main panel provides the individual indicator data, and the upper panel provides a black line summarizing the 4 factors on a 0-100 scale (in units of 25), where zero is all indicators negative and 100 is all indicators positive.

The two primary factors (necessary but not sufficient) are the position of the price above or below the 12 month moving average; and the direction of the tip of the 12 month moving average.

The two secondary factors (used for confirmation of the primary factors) are the 12-month money flow index (introduces volume — in green), and the parabolic stop & reverse indicator (introduces time and pace — in blue dots).

United States



Emerging Markets

United Kingdom

Asia Pacific ex Japan


Symbols for securities mentioned in this article are:

The S&P 500 is mentioned for which SPY, IVV, VOO and VFINX are good proxies.



StockChart Technical Rating Criteria ……

Long-Term Indicators (weighting)

  • Percent above/below 200-day EMA (30%)
  • 125-Day Rate-of-Change (30%)

Medium-Term Indicators (weighting)

  • Percent above/below 50-day EMA (15%)
  • 20-day Rate-of-Change (15%)

Short-Term Indicators (weighting)

  • 3-day slope of PPO-Histogram (5%)
  • 14-day RSI (5%)

BarChart Technical Indicators ……

Short Term Indicators (7 to 50 day indicators)

  • 7 Day Average Directional Indicator
  • 10-8 Day Moving Average Hilo Channel
  • 20 Day Moving Average vs Price
  • 20 – 50 Day MACD Oscillator
    20 Day Bollinger Bands

Medium Term Indicators (20+ to 50 day indicators)

  • 40 Day Commodity Channel Index
  • 50 Day Moving Average vs Price
  • 20 – 100 Day MACD Oscillator
  • 50 Day Parabolic Time/Price

Long Term Indicators (50+ to 100 day indicators)

  • 60 Day Commodity Channel Index
  • 100 Day Moving Average vs Price
  • 50 – 100 Day MACD Oscillator

MarketEdge Second Opinion Indicators ……

  • A LONG Opinion implies that there is a high probability that stock should move up over the next 60-90 days.
  • A NEUTRAL Opinion suggests that the supply/demand condition of the stock is in a state of flux and the likely hood is that the stock will trade sideways over the near term. A Neutral from Avoid indicates that the supply/demand condition is improving while a Neutral from Long indicates that the supply/demand condition is deteriorating.
  • An AVOID Opinion can either denote a Short Sale candidate or a stock that has lost its positive momentum characteristics at this time should trade sideways to down over the next 30-60 days.


Score is a value between -4 and +4 and indicates whether the technical condition of the stock is improving or deteriorating. A score of -4 represents the worst extreme possible before the stock is Downgraded to Avoid while a score of +4 indicates the best level obtainable before the stock is Upgraded to a Long Opinion. It is suggested that you take defensive action if you are long a stock and the Score deteriorates to -3 or -4. Conversely, if you short a stock take defensive action if the Score is +3 or +4.

QVM 4 Factor Technical Rating ……

We look at monthly data to see:

  1. Whether the price is above or below the 12-month moving average
  2. Whether the leading edge of the 12-month average is tilted up or down versus the prior month
  3. Whether the price is moving up at a reasonable pace (introduces time and pace — with an indicator called the parabolic stop & reverse)
  4. Whether the volume of trades is more at the upper end of daily price ranges or at the bottom end of daily price ranges (introducing trading volume — with an indicator called the money flow index).

The first two factors are necessary, but not sufficient, to trigger a major reversal alert – because alone they are prone to whipsaw.

The third and fourth factors measure different things than the first and second, and are necessary to confirm the alerts from the first and second to minimize whipsaw risk.

13 Dividend Stocks Passing Rigorous Quality, Growth and Valuation Filter

Wednesday, October 7th, 2015
  • Only 13 dividend stocks passed basic filter criteria out of the hundreds in the Dividend Champions and Contenders in Dave Fish’s valuable lists
  • Most of those stocks are rated negatively from a technical perspective
  • Only 1 stock passed all the filter criteria and is also rated positively technically

In search of high quality dividend stocks, we performed this basic filter on Sunday October 4, 2015, and found only 13 prospects, most of which are not attractive in terms of current price behavior, but which may have long-term appeal:

  • Using David Fish’s dividend stocks lists, the stocks had to have paid and increased dividends for at least 10 years, and the dividend growth rate for 1, 3, 5 and 10 years each had to be at least 2%.
  • Using Wright’s quality ratings, the stocks had to be rated A or B for “investor acceptance”, A or B for “financial strength”, A or B for “profitability and stability”, and at least 4 on a 20 point scale for “growth” (each of the four dimensions based on eight parameters)
  • Using Standard & Poor’s Capital IQ ratings, the stocks had to be rated at least 3 on a 5 point scale for year ahead performance, and at least 3 on a 5 point scale for fair value pricing.
  • Using Fidelity’s equity summary score, the stocks had to be rated neutral or better (>3.1 on a 10 point scale)
  •  Using Street Consensus data, the stocks had to have a positive PEG that is 2.0 or less; and a 12-month target price that is at least 5% above the current price
  • The current yield must have been at least 2%.

Out of the thousands of listed stocks, and the hundreds of stocks in Fish’s lists, and the hundreds of stocks with high Wright’s quality ratings, only 13 passed those filter criteria — and most of those right now, like the overall market, have negative technical ratings.

  • (EV) Eaton Vance
  • (TROW)  T. Rowe Price Group
  • (ACE) Ace Limited
  • (UTX) United Technologies
  • (IBM) International Business Machines
  • (CAH) Cardinal Health
  • (CHRW) C.H. Robinson Worldwide
  • (FAST) Fastenal
  • (GPS) The Gap
  • (CSX) CSX Corporation
  • (TRV) The Travelers Companies
  • (CMI) Cummins
  • (CR) Crane Company

Only 1 stock was also positively rated technically — C.H. Robinson Worldwide (CHRW).

Its business is described on the Wright’s side as:

“C.H. Robinson Worldwide, Inc. is a third party logistics company. The Company provides freight transportation services and logistics solutions to companies of all sizes, in a variety of industries. The Company operates through a network of 281 offices in North America, Europe, Asia and South America. It has developed global transportation and distribution networks to provide transportation and supply chain services worldwide. It also provides sourcing services through Robinson Fresh. Sourcing business involves the buying, selling and marketing of fresh fruits, vegetables, and other perishable items. The Company supplies fresh produce through its network of independent produce growers and suppliers. Its customers include grocery retailers and restaurants, produce wholesalers and foodservice distributors. It also arranges the logistics and transportation of the products it sells and provides related supply chain services, such as replenishment, category management and merchandising.”

We already own a few of the stocks and have for a while: Travelers, Cummins, United Technologies, and T. Rowe Price.

Here are some tables showing attributes of each stock:

This table shows the Wright’s quality ratings, the S&P Cap IQ rating, the Fidelity equity summary score, the Barchart technical rating and the StockCharts technical rating:


IA is for Investor Acceptance
FS is for Financial Strength
PS is for Profitability and Stability
GR is for Growth
SP* is for S&P year ahead total return relative to the market
SP FV is for S&P Fair Value
SM is for Fidelity equity summary score
The rating from StockCharts is on a 100 point scale

This table shows the name and the number of years the stock consecutively paid and increased dividends without interruption; the payout ratio and the current yield.

This table shows the annualized dividend growth rate over the last 1, 3, 5, and 10 years:


This table shows the fundamental valuation of the stocks:  Price-to-Book, Price-to-Sales, trailing Price-to-Earnings, forward Price-to-Earnings, PEG ratio, and 12-month forward street consensus target price divided by the current price:


This chart summarizes some basic technical information: price to 200-day average, 50-day average to 200-day average, the position of the price within the 52-week high to low range, the 12-month target price to the 200-day average, and the short ratio (number of days to cover the total short position at the average trading volume rate):


The following charts from, each chart for an individual stock, show a normalized 10-year history of price, revenue, cash from operations, dividends, and debt to equity:

ace cah chrw cmi cr csx ev fast gps ibm trow trv utx

There should be enough for do-it-yourself dividend investors to chew on here, as they go to the next level of due diligence and personal suitability review.

We find the low number of stocks that passed our filter to be one indication that the market may be overpriced, and vulnerable to further correction. We would have expected a larger number stocks to pass, but so many had too high PEG ratios, too low yields and too low forward price change estimates, that the list withered to a small number very quickly.

Target Date Funds As Aid In Retirement Portfolio Design

Sunday, October 4th, 2015
  • Investors in or near retirement should be aware of portfolio design leading fund sponsors suggest as appropriate
  • Leading target date funds appear to generally have less severe worst drawdowns than a US 60/40 balanced fund
  • The funds have slightly higher yields than a US 60/40 balanced fund
  • Target date funds have underperformed a US 60/40 balanced fund in part due to a cash reserve component and non-US stocks
  • Non-US stocks drag on historical performance could become future boost to performance.


This article is suitable for investors who are in retirement or nearly so, and who are or will rely heavily on their portfolio to support lifestyle.

It is not suitable for those with many years to retirement, or those with a lot more money in their portfolio than they will need to support their lifestyle.


We have been writing about the short-term recently (here and here and here), because we are in a Correction, that may become a severe Correction, and possibly a Bear.

For our clients who fit the profile of being in or near retirement and heavily dependent of their portfolio to support lifestyle in retirement, we have tactically increased cash in the build-up to and within this Correction, as breadth and other technical have deteriorated.

However, we don’t want to lose sight of long-term strategic investment.  This article is about asset allocation for investors that fit that retirement, pre-retirement, portfolio dependence profile.


We think it is a good idea to begin thinking about allocation by:

  1. reviewing the history of simple risk levels (see our homepage) from very conservative to very aggressive to get a sense of where you would have been comfortable
  2. reviewing what respected teams of professionals at leading fund families believe is appropriate based on years to retirement (they assume generic investor without differentiated circumstances).

This article is about the second of those two important review — basically looking at what are called “target date” funds.

Generally, portfolios should have a long-term strategic core, and may have an additional tactical component.  We think some combination of risk level portfolio selection and/or target date portfolio selection can make a suitable portfolio for many investors.

You may or may not want to follow target date allocations, but you would be well advised to be aware of the portfolio models as you develop your own.

In effect, we would suggest using risk level models and target date models as a starting point from which you may decide to build and deviate according to your needs and preferences, but with the assumption that the target date  models are based on informed attempts at long-term balance of return and risk appropriate for each stage of financial life.

For example, an investor might deviate one way or the other from more aggressive to less aggressive based on the size of their portfolio relative to what they need to support their lifestyle, and the size of non-portfolio related income sources; or merely their emotional comfort level with portfolio volatility.

There no precise allocation that is certain to be best, which is revealed by the variation in models among leading target date fund sponsors.  Their allocations are different, but similar in most respects.


For this article, we identified the 7 fund families with high Morningstar analyst ratings for future performance (those ranked Gold and Silver, excluding those ranked Bronze, Neutral or Not Rated).

Those 7 families are:

  • Fidelity
  • Vanguard
  • T. Rowe Price
  • American Funds
  • Black Rock
  • JP Morgan
  • MFS

Fidelity, Vanguard and T. Rowe Price have about 75% of the assets in all target date funds from all sponsoring families combined.


We then used Morningstar’s consolidated summary of their detailed holdings to present and compare the target date funds from each family.  The holdings were summarized into:

  • Net Cash
  • Net US Stocks
  • Net Non-US Stocks
  • Net Bonds
  • Other

While we have gathered that data for retirement target dates out 30 years.  This article is just about target date funds for those now in retirement or within 5 years of retirement.


We simulated the hypothetical past performance of those target date funds using these Vanguard funds:

  • VMMXX (money market)
  • VTSAX (total US stocks)
  • VGSTX (total non-US stocks)
  • VBLTX (aggregate US bonds)

Admittedly, this is a gross proxy summary of the holdings of the subject target date funds  The funds may hold individual stocks or bonds, may hold international bonds, may use some derivatives, and may have some short cash or short equities. Nonetheless, we think these Vanguard funds are good enough to serve as a proxy for the average target date funds, and as a baseline model for you to examine target date funds and to plan your own allocation.


As a benchmark for each allocation, we chose the Vanguard Balanced fund which is 60% US stocks/40% US bonds index fund. Figure 1 shows the best and worst periods over the last 10 years for that fund, as well as its current trailing yield.



So, let’s keep the 2.10% yield in mind as we look at the models, and also the 19.7% 3-month worst drawdown, the 27.6% worst annual drawdown, and 7.3% worst 3-year drawdown.


Figure 2 shows the allocation from each of the fund families for those currently in retirement.  It also averages their allocations for all 7 and for the top three (Fidelity, Vanguard, T. Rowe Price).

(click image to enlarge)


You will note substantial ranges for allocations from fund family to fund family.  For example, MFS using about 19% US stocks while Fidelity uses about 38%; and MFS uses about 64% bonds and Fidelity uses about 36%.

The average bond allocation for the 7 families is about 54%, but the top three by assets average about 42%; and their average cash allocation is about 9% versus the top 3 average of 5%.

Figure 3 shows how a portfolio using Vanguard index funds would have performed over the past 10 years with monthly rebalancing if it was based on the average of the top 3 families.

We recalculated the allocations to exclude “Other” which is undefined, but which is relatively minor in size in each fund.

We also note that the Vanguard index funds have a small cash component, so that the effective cash allocation is higher than the model.

FIGURE 3 – Backtest Performance:
(retired now: average of top 3 families)



  • Yield is somewhat higher (2.28% versus 2.10%).
  • Worst 3 months were somewhat better (-18.4% versus – 19.7%)
  • Worst 1 year was somewhat better (-26.2% versus -27.6%)
  • Worst 3 year drawdown was better (-5.7% versus -7.3%)
  • Underperformed benchmark over 10, 5, 3 and 1 year and 3 months (10 years underperformed by annualized 1.05%).

Reasons For Underperformance:

Inclusion of non-US equities may be the biggest contributor to underperformance versus the balanced fund with 100% US securities.

Another part of the underperformance is maintenance of a cash reserve position that is over and above any cash position within the benchmark balanced fund.  Part is also  due to a higher bond allocation.

Those factors probably account most of the performance difference.  We did not try to determine the exact contributions of each attribute to performance differences.

The historical underperformance due to non-US stocks could possibly turn out to be a long-term reason for future outperformance.

FIGURE 4 – Backtest Performance:
(retired now: average of top 7 families)


  • Yield is somewhat higher (2.19% versus 2.10%).
  • Worst 3 months were significantly better (-12.6% versus – 19.7%)
  • Worst 1 year was somewhat better (-17.7% versus -27.6%)
  • Worst 3 year drawdown was a lot better (-2.3% versus -7.3%)
  • Underperformed benchmark over 10, 5, 3 and 1 year & outperformed over the last 3 months (10 years underperformed by annualized 1.32%).
  • Incurred less drawdown in exchange for lower cumulative return.


FIGURE 5 – Allocation:
(expected retirement within 5 years)

(click image to enlarge)


Again, we see substantial variation between fund families, and also between the averages for the top 3 by assets and for all 7 of the Gold or Silver rated target date families.

The average bond allocation for the 7 families is about 44%, but for the top 3 it is only about 34%.  For the 7 families the average non-US stocks are about 15%, but for the top 3 families it is about 21%.

FIGURE 6 – Backtest Performance:
(up to 5 years to retirement: average of top 3 families)


  • Yield is higher (2.30% versus 2.10%).
  • Worst 3 months were somewhat worse (-21.1% versus – 19.7%)
  • Worst 1 year was somewhat worse (-30.1% versus -27.6%)
  • Worst 3 year drawdown was the same (-7.3% versus -7.3%)
  • Underperformed benchmark over 10, 5, 3 and 1 year and 3 months (10 years underperformed by annualized 0.95%).

FIGURE 7 – BacktestPerformance:
(up to 5 years to retirement: average of top 7 families)


  • Yield is somewhat higher (2.19% versus 2.10%).
  • Worst 3 months were better (-16.2% versus – 19.7%)
  • Worst 1 year was better (-22.9% versus -27.6%)
  • Worst 3 year drawdown was better (-4.4% versus -7.3%)
  • Underperformed benchmark over 10, 5, 3 and 1 year & slightly outperformed over the last 3 months (10 years underperformed by annualized 1.19%).


Figure 8 presents the current yield and rolling returns of the five individual proxy funds used in this review.


(click image to enlarge)



(click image to enlarge)