August 24, 2015

VALUATION WATCH: Overvalued stocks now make up 38.55% of our stocks assigned a valuation and 11.95% of those equities are calculated to be overvalued by 20% or more.  Four sectors are calculated to be overvalued.

--Winning (AGAIN!)

VE Forecast Market Neutral Portfolio Shrugs Off China Turmoil, Posts Big Gain

It was another great result for the ValuEngine Forecast 16 Market Neutral Strategy Portfolio. July/August was a terrific month as volatility and China-driven market sell off powered-up our short side. We posted a gain of 7.31% and beat both the SP500 loss of 6.03% and the MLSAX loss of 1.17%. That's a beat of 848 bps on the MLSAX and a whopping 1344 bps to the S&P 500!

The modified stop-lossed strategy with a suggested 60-40 allocation trailed the standard market neutral allocation with a gain of 4.63%. The trailing 12 month percentage return is 42.96% for the newsletter and 5.44% for the MLSAX Long-Short Fund—and -0.05% for the SP500. Since inception, our portfolio has returned 159.68% vs the MLSAX return of 30.05%.

This month demonstrated yet again the benefit of the market neutral approach. Our shorts were amazing with massive pick ups for many selections. Ten of sixteen picks posted double-digit gains with several positions returning in excess of 40%. Longs—as is to be expected given the market action this month-- were pretty much a wash across the board with the exception of Net 1, PG&E, and Douglas Dynamic.

Valuations have declined significantly and are looking oversold. 38.55% of the stocks we can assign a valuation are calculated to be overvalued-- with 11.95% of them calculated to be overvalued by 20% or more. As we have been saying for a while now, we remain confident that the underlying US economy is strong-- and getting stronger. However, we live in an interconnected world and China has a cold. Time to tighten up those stop-losses

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Here are the primary long and short-side selections and their performance for the month.

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The ValuEngine View Newsletter is the product of a sophisticated stock valuation model that was first developed by ValuEngine's academic research team. It utilizes a three factor approach: fundamental variables such as a company's trailing 12-month Earnings-Per-Share (EPS), the analyst consensus estimate of the company's future 12-month EPS, and the 30-year Treasury yield are all used to create a more accurate reflection of a company's fair value. A total of eleven additional firm specific variables are also used. In addition, the portoflio uses top picks from our Forecast Model. In essence, the portfolio is constructed with the best picks from our main propiretary models

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