By Nicholas A. Vardy, CFA
Liberty Science Center
Much like life, investment strategies have their seasons. On a daily basis, I monitor two dozen or so investment strategies that have a strong record of outperforming the broader U.S. stock market over time. Here's what I have learned ...
First, there are many different ways to skin the investment cat. Value, growth, buybacks, IPO investing, insider sentiment and other strategies all approach the market differently in trying to outperform it.
Second, no investment strategy works in all markets, all the time. This year's winners may turn out to be next year's dogs and vice versa.
In the roaring 1990s, it was pie-in-the-sky internet story stocks that promised the quickest road to wealth. In the late 2000s, the Commodities Supercycle and the China Miracle represented the glorious future.
In today's zero-interest-rate world, it has been conservative, income-generating investments that have been the best bet in recent years. With that caveat, below are the top three performing investment strategies that I monitor and their performance vs. the S&P 500 /zigman2/quotes/210599714/realtime SPX -2.27% year to date.
1. Deep Value ETF (DVP)
The Deep Value ETF tracks an index of 20 stocks selected from the S&P 500. It identifies undervalued stocks using proprietary quality screens — positive earnings, dividends, etc. — and valuation metrics like enterprise value to EBITDA.
Holding only about 20 names, DVP shows a big a big mid-cap tilt and sector bias.
S&P 500 vs. DVP year to date
DVP's top three holdings are Staples Inc. , Transocean Ltd /zigman2/quotes/208905612/composite RIG -6.21% and Whole Foods Inc .
Year to date, the Deep Value ETF has posted a total return (including dividends) of 23.45%.
For income-oriented investors, the fund's 4.16% yield beats the S&P 500 Index's yield of 2.05%. DVP charges a hefty 0.80% in annual fees.
2. VanEck Morningstar Wide Moat (MOAT)
The VanEck Vectors Morningstar Wide Moat ETF /zigman2/quotes/207651121/composite MOAT -1.97% tracks an equal-weighted index of 20 stocks unearthed by Morningstar's equity research team and designated the most attractively priced with sustainable competitive advantage or "moat."
The small basket of stocks results in a concentrated portfolio and significant sector biases.