SmallCap High Dividend Yield

A strategy for investors seeking rising dividend income from a portfolio of smallcap stocks.

Strategy Description

The objective of the SmallCap High Dividend Yield model is to capture an abnormally large annual dividend while avoiding value traps which can erode total returns.

The portfolio buys 20 of the top ranked qualifying dividend stocks. To qualify, a stock must pass a basic liquidity filter, be listed on a major exchange and not be an ADR. The remaining stocks are sorted as to dividend yield ad the top 300 stocks are retained as the investable universe.

Stocks are ranked based on a proprietary formula which includes various factor themes such as growth, value, volatility, sentiment, shareholder yield and payout ratio. Other factors are considered such as industry strength.

The portfolio may at times hold cash when fewer than 20 high yield stocks pass the buying criteria. This happens only on very rare occasions. There are no restrictions as to sector weighting and the model will often be significantly overweight in high yielding stocks in a single sector. This model also will typically hold stocks of very small capitalization – from micro-cap to small-cap.

 

Definitions

Sharpe Ratio – the average return earned in excess of the risk-free rate.  A higher Sharpe Ration is better

Risk-Free Rate – represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.

Sortino Ratio – another measure of risk that takes into account the downside deviation of the asset.  A higher Sortino Ratio is better.

What is Drawdown?

Drawdown is the measure from the highest high to the lowest low or peak to trough during a specific time period.  It is an important measurement of risk.  A larger drawdown requires a more significant increase in the security to recover.

Volatility measures the change in the price of an investment.  The higher the volatility, the higher the difference between the high and the low of an investment’s price.

The 12 Month Rolling ROR is the compound rate of return for the last 12 months.  The rate of return is the gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s cost.