Covestor Model: Market Comparables
Richard Moore is a Covestor manager with more than 40 years of investment experience. Richard has worked for banks, mutual funds and investment advisors. Richard believes it’s counterproductive to spend time trying to outguess the market on large, widely-followed stocks, so he screens the broad US market with models he has refined over many years that contain two main indicators to expose stocks to research. He says:
My valuation screen uses relative and adjusted EBITDA multiples compared to their industry peers. My momentum screen looks at relative price performance over the time periods in 3 month, 6 month and 12 month cycles, to restrict to those that the market indicates are outperforming their peers.
Richard manages Covestor’s Market Comparables portfolio, which follows the aforementioned strategy and has a risk score of 3. Current top holdings include ProShares Short Russell 2000 (NYSE: RWM), ProShares Short S&P 500 (NYSE: SH) and Omega Protein Corp (NYSE: OME).
Richard had this to say about managing his portfolio in March:
In my view, the stock market remains in a high risk environment. I was hopeful that the correction that began in February would bring my sentiment indicators in line, but the strong advance in stock prices in the last half of March has left us right where we were before the short correction – in an environment that is conflicted. The market trend remains positive but my sentiment indicators remain extremely negative.
In an environment such as this, I continue to maintain a hedged portfolio. I am attempting to produce a positive return with a low risk approach and I was able to achieve that goal in the first quarter. I am using screening techniques to pick attractive equities to buy and hedging those holdings with a 50% holding in inverse ETFs. I believe the obvious risks associated with European economies, Middle East wars, possible state bankruptcies and QE2 dictate a cautious approach.