Wednesday, September 28, 2011

Net Payout Yields Model Holding Up Well

The Net Payout Yields (NPY) model continues to perform well in this wild market. Naturally the model is down slightly for the year, but it has held up much better than the SP500.

The model invests in companies with over a $10B market cap and a heavy dose of dividends and stock buybacks. Similar to the Dogs of the Dow theory, the higher the yield the more attractive the stock.

If a company has enough money to pay a 5% dividend yield and a 5% buyback yield, than just maybe the market is overlooking its future potential. Any company with that much cash must be worth a second look. Instead though of spending hours upon hours of research, the model lets the management team provide the signals.

Not only is this more efficient, but it removes the emotion from investing. Sure a few companies might have bad management teams that are just wasting money, but in general it tends to work out that the company is signaling a brighter future for the stock than the market.

The model is only slightly down YTD while the SP500 is down 6.5% providing for a net outperformance of almost 6%. Not bad for a mostly passively managed portfolio and much better than a SP500 index.

The below results are pasted directly from based on their calculations. Future results can not be guaranteed.

Inception Nov 02, 2010 Manager* S&P 500 Avg Sub
Month to date (%) -1.54 -3.57 -1.68
1 month (%) -4.66 -5.68 -4.24
3 month (%) -8.12 -9.39 -
Annualized since inception (%) 2.07 -1.69 n/a
Since inception (%) 1.87 -1.52 n/a
Sharpe (annualized) 0.10 -0.09 n/a          

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