Strategy
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US Value Strategy

10 Dec 2019
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The US Value strategy uses fundamental criteria to select stocks from a pool of large capitalisation US stocks. The selection criteria involve two main fundamental concepts being 1. Earnings Sustainability and 2. Return on Capital Employed. These criteria are combined with the earnings yield of the company to produce a Rivkin Value rank.

Latest Update – 10 December 2019

Today the US Value strategy was rebalanced as per the monthly rebalance schedule. At this time, three stocks are being sold from the portfolio, Best Buy Co Inc (BBY), Bristol-Myers Squibb Co (BMY) and Nordstrom Inc (JWN) will be replaced with four new stocks; Raymond James Financial Inc (RJF), NRG Energy Inc (NRG), DR Horton Inc (DHI) and Qualcomm Inc (QCOM). Of the sold shares, expected P&L is as follows; BBY +25.68%, BMY -10.15% and JWN +6.02%. We generally recommend splitting the sale proceeds evenly between the new buys as well as picking up any dividends or additional funds that have been added in the prior month.

As many might remember, Celgene Corp (CELG) was acquired during the month by Bristol-Myers Squibb Co (BMY) and hence there are only three sells needed for today. Members can also sell the Contingent Value Rights that we received in this takeover. We don’t know what these might be worth in the future (it depends on certain milestones being reached by BMY) but in the model account we have decided to sell them to realise some value from them immediately.

As a reminder, this strategy rebalances on the 10th of each month (or the next business day if the 10th is a non-trading day). For specific details of closed trades, please see our historical performance page.

Stock codeStock nameRankQtyEntry dateEntry priceCurrent priceCurrent valueReturn percentage
ABBV
AbbVie Inc
4
6513 May 19$76.37$86.69$5,634.8513.51%
AMP
Ameriprise Financial Inc
3
4012 Mar 19$124.49$164.41$6,576.4032.07%
CMI
Cummins Inc
5
2611 Nov 19$186.27$182.12$4,735.12(2.23%)
DHI
DR Horton Inc
9
9110 Dec 19$54.89$55.80$5,077.801.66%
HBI
Hanesbrands Inc
2
31511 Nov 19$15.86$15.05$4,740.75(5.11%)
MO
Altria Group Inc
7
10711 Nov 19$46.41$50.45$5,398.158.71%
NRG
NRG Energy Inc
8
12910 Dec 19$38.56$38.91$5,019.390.91%
QCOM
QUALCOMM Inc
10
5810 Dec 19$84.92$86.54$5,019.321.91%
RJF
Raymond James Financial Inc
6
5510 Dec 19$89.47$89.41$4,917.55(0.07%)
SYF
Synchrony Financial
1
13511 Nov 19$36.94$37.18$5,019.300.65%

*Quantities are based on investing US$5,000 per stock on the entry date
**All dollar values are in US dollars, and therefore returns are calculated as a US dollar return. Depending on whether or not you use hedging to manage your currency, exposure will determine whether you need to adjust returns to account for exchange rate effects.

US Value Strategy

Our strategy selects stocks from the S&P 500 as well as the Nasdaq 100 indices. This produces a pool of approximately 500-600 stocks to choose a portfolio from (depending on the overlap between the two indices). The Value ranking process narrows this list down to just ten stocks which form the recommended portfolio for investors following this strategy.

As with Rivkin’s other strategies, not all of the trades will be a winner, but the statistics should be in the investors favour such that over the long term, we expect a market-beating return. According to the back-testing, we expect 59% of trades to be winners, and we expect an average profit per winning trade of 12.5%. On the other side, the losing trades have an average loss per trade of just 9.24%.

How To Follow This Strategy

Rivkin’s strategies are designed to be as easy as possible for investors to follow. To follow the US Value strategy, investors need to buy the stocks in the above table in equal weights. Weights can drift over time as stock prices move, but we only recommend re-balancing stock weights if they stray too far from the target weight (10% per stock). The stock volumes shown in this table are based on a $5,000 investment per stock which produces a $50,000 portfolio. Being a US strategy, this is priced in US dollars and therefore, to get the Australian dollar value, the current exchange rate should be applied.

Once per month, the list of stocks will be updated in what we call a ‘re-balance’. This means investors will need to look at the new list and sell any stocks that are no longer on the list. After these stocks are sold, the new stocks from the current table can be bought.

About The Strategy

The US Value strategy was developed by Rivkin during 2017 and was rolled out as a strategy to clients in February 2018. Extensive back-testing was done to create and refine the strategy, and it is this back-testing that we rely on to give us increased confidence about future expectations. Please click here to find out more about the strategy.

View Comments

4
Comments

Peter Wein

The BMY advice is unclear – are we selling the entire holding or just down to 10%? Also we are left with BRISTOL MYERS SQUIBB CO VALUE RT- CVR Rights – currently trading at $US 2.91 – should we also sell these

William O'Loughlin

Hi Peter,
Sorry for this oversight, the advice has been corrected. We are selling the full BMY position.
Regards,
William

Peter Wein

including the rights?

William O'Loughlin

Hi Peter,
I have made a further update to the text. We will sell these rights from the model account but members can decide to keep them if they wish. It is a bit of a lottery ticket as to whether they will pay off in the future (depends on performance of certain CELG assets bought by BMY). If they do pay off, you will just be automatically paid some amount in the future for them. Otherwise, if you want the certainty of value today, just sell them on market.
Regards,
William

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