Your Money
Some people just like the taste of sausage and don't want to know how it is made. Similarly, with portfolio management, some folks just want the bottom line and begin to glaze over as soon as we dive too deep. Caveat lector!
At PRESERVE Wealth Management, Exchange-Traded Funds (ETFs) are our main investment vehicle for public stock and bond holdings. They offer many advantages over mutual funds and individual securities, but investors can't easily track the investments or activity that happens inside them. While we may hold ETFs for a long period of time, it's easy to forget the real companies underneath and the flurry of activity that happens within.
As our investment philosophy has been avoiding speculation and focusing on quality for some time now, one of our core holdings, Capital Strength, is a perfect example of what goes on unseen in your portfolio. Every three months, the 500 companies in the S&P 500 get examined, scored, and rated on four key factors:
- Cash: Each company must have at least $1 billion in cash or short-term investments.
- Debt: Each company must have a long-term debt to market cap ratio of less than 30%.
- Profitability: Each company must have a return on equity greater than 15%.
- Volatility: Companies are ranked by a combined short-term (90 days) and long-term (260 days) realized volatility.
The 50 companies with the lowest combined volatility score are selected for inclusion in the fund. 15 holdings were eliminated, and 15 new names came in. This all happens tax-free. Notable holdings that were eliminated include The Allstate Corporation and Costco Wholesale Corporation, and notable new additions include Aon and Humana.
July's full rebalance notes for Capital Strength were released last week
source: First Trust
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