On Monday, we detailed the first year of Proactive Investors’ take on a UK version of the highly successful “Dogs of the Dow” investment strategy.
It is now time to refresh the portfolio by running the screen again, getting rid of those constituents that no longer fit the bill and replacing them with those that do.
You can read how the virtual portfolio did last year, and also the concept behind the “Dogs of the Dow” and the changes we made to the system, in the articles linked to below.
READ: Bumper year for the big ticket “Dogs of the Footsie”
READ: Selectively breeding the Dogs of the Footsie
READ: Cry havoc and let loose the Dogs of the Footsie
Out with the old dogs
A screen was run on the FTSE 100 stocks, looking for companies that had dividend cover – based on broker forecasts of this year’s earnings and dividends – of at 1.5.
The companies were then ranked in order of yield, with the highest yielder at the top.
As a result of this, the following existing “Dogs of the Footsie” were jettisoned: AstraZeneca, Barratt Development, Capita Group (no longer a FTSE 100 company - and it might not stay in the FTSE 250 for long, either, the way things are going), Royal Mail (ditto), Taylor Wimpey and TUI AG.
Their replacements were: Evraz, Lloyds Banking Group, ITV, Aviva, WPP and Berkeley Group.
I’ve owned at least two of those when they summarily slashed or binned their dividends, but whatever my misgivings about Lloyds and Aviva, this is a mechanical investment system so they make it into the portfolio.
The table below lists the prices at which the ex-dogs were sold (and the receipts raised) and the prices at which the new dogs were bought.
Comings and goings in the "Dogs of the Footsie" portfolio
Old dogs
Sold at
Receipts
New dogs
Bought at
5075p
£1,152.5
Evraz
380p
606.2p
£1,233.77
Lloyds Banking
70.56p
BT Group
Retained
351.7
£677.85
ITV
169.45
Retained
Marks & Spencer
Retained
Retained
Royal Mail
466.8
£1,100.65
Aviva
520.4p
195.7
£1,137
WPP
1,289p
TUI AG
1,614.5
£1,341.18
Berkeley
4,063p
I suspect that were I adhering 100% to Michael O’Higgins’s “Dogs of the Dow” system, I would have sold all 10 stocks and then bought an equal amount of the “new” 10, even though four of those “new” stocks – BT, Legal & General, Marks & Spencer and Persimmon – are, in fact, the old stocks returning for another year.
In this virtual portfolio I am factoring in dealing costs of £15 for each transaction and also using bid/offer prices in a vague attempt at realism, and so selling four stocks (with dealing charges at £15 a pop) and then buying them back (ditto) would waste £120 so I elected not to do that (even though it is only virtual money).
After selling the six stocks the portfolio had cash of £6,700, and the total value of the portfolio, including cash, was £11,492, which meant that, in theory, the average “cost of holding” for each stock should be £1,149.20.
The four stocks retained from last year’s “Dogs” portfolio only had £1,000 invested in them, so in theory I should have topped up each holding by £150, but as 10% (i.e. £15) of each top-up would immediately be swallowed up by dealing costs, I elected to do what I would have done in real life, as a fully paid-up cheapskate, and invested the available cash in the new stocks and left the initial stakes in the carry-over stocks unchanged.
If you are “trying this at home” feel free to adopt whichever system you feel most comfortable with.
Having unequal investments in each stock does confuse the issue when trying to determine who the best performers are, but as we only care about that from an idle curiosity point of view, who gives the proverbial flying one?
So, following all of that ducking and diving, here’s what the new portfolio looks like.
Selectively bred dogs of the Footsie – year two
Company
No. of shares
Total cost
Average price paid
Current bid price
Current value
Profit/ loss £
Profit/ loss %
Aviva
231
£1,217
526.89p
520p
£1,201
-£16
-1.3%
29
£1,193
4,114.72p
4,063p
£1,178
-£15
-1.3%
BT Group
323
£1,002
310.15p
258.15p
£834
-£168
-17%
Evraz
316
£1,216
384.75p
379.8p
£1,200
-£16
-1.3%
ITV
708
£1,215
171.57p
169.25p
£1,198
-£16
-1.4%
419
£1,000
238.78p
272.9p
£1,143
£143
14%
Lloyds Banking
1,701
£1,215
71.44p
70.51p
£1,199
-£15
-1.3%
Marks & Spencer
293
£999
341.02p
306.5p
£898
-£101
-10%
51
£1,000
1,960.41p
2,567p
£1,309
£309
31%
WPP
94
£1,227
1,304.96p
1,290p
£1,213
-£14
-1.2%
(Companies listed in italics have been retained from the year one portfolio)
- Cash: £13
- Current market value of portfolio (including cash): £11,388