Wednesday, May 17, 2017

Similar Strategies But Vastly Different Outcomes

One thing I like to do is compare the performance of certain groups of stocks, asset classes, or strategies.  Today I'm going to take a look at what appears to be a similar investing strategy, and how it can affect your results with just a few charts.

Many investors are fans of buying the best available stocks. For good reason as they usually carry the following traits:



  1. Consistent Earning Power
  2. Revenue Growth
  3. Solid Profit Margins
  4. Dividends
  5. Less Volatile
Wouldn't you want those traits in a company you ran?

There are in fact two ETF's that look to find most of these characteristics for investors to buy in a couple of clicks. The Powershares S&P 500 High Quality Portfolio(SPHQ), and the Powershares S&P 500 Low Volatility Portfolio(SPLV). Reading through the goal of each you can see the strategies can overlap just a bit from the two funds. A review of their holdings reveals 28 holdings, or approximately 28% of their holdings are identical.  

Let's look at the performance of each versus the S&P 500 Index on a  YTD, 2 year, and  5 year time frame. 


Looking YTD we see similar performance results with the S&P 500 Index just edging ahead. Remember these charts don't include dividends. This would likely lead a novice to conclude the results are similar so their is no difference in investment strategy.

SPHQ - 5.83%
SPLV - 5.32%
SPX - 6.10%


Now over 2 years we start to see a wider divergence on one level. Note the two ETF's are still very similar in the performance, but we see they handily beat the S&P 500 the last two years with an approximate 8% spread between the two ETF's.

SPHQ - 19.32%
SPLV - 20.83%
SPX - 11.92%


Next up is a 5 year chart.  Here we start to see a much wider divergence between all three strategies. The "High Quality" strategy takes an almost 18% gain over the "Low Volatility" strategy, but both beat the S&P 500 with a 23%, and 5% better result.

SPHQ - 105.46%
SPLV - 87.48%
SPX - 82.07%




 

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