I've created 5 User-Defined Indexes (UDI) here at StockCharts.com. I use these UDIs to track our four equal-weighted portfolios - Model, Aggressive, Income, and Strong AD - and one other pandemic-related index. Our flagship Model portfolio handled yesterday's selling pretty well and currently stands with a 163% gain since its inception on November 19, 2018 (less than two years). That compares quite favorably to the S&P 500's return of +26%. Perhaps the most impressive performance stat related to the Model Portfolio, however, is how it's performed since the February 19, 2020 top. Here are the Model Portfolio and S&P 500 performance numbers since that date:
Model Portfolio: +63.85%
S&P 500: +0.44%
That's a lot of outperformance and a big part of this outperformance can be attributed to avoiding the hardest-hit sectors and industry groups during this pandemic. Investing in leading stocks in leading industry groups is the primary reason for the outperformance, in my opinion, but doing our proprietary research and recognizing the huge disparities in sector/industry performance played a big role as well.
I developed my 5th User-Defined Index, my "Pandemic Index", specifically to track the industry groups most impacted by COVID-19. Say what you want about Wall Street, but it's a collective bunch of MBAs, PhDs, etc. They're brilliant and they have access to information that we do not. They use this information to make solid investments. They were buying stay-at-home stocks by the billions in March, while the media was screaming "Great Depression 2.0"!!! Everyone was selling, while Wall Street was buying and accumulating BIG TIME. At EarningsBeats.com, we saw it, I wrote about it, and our members benefited from our portfolios and also our ChartLists that focus on fundamentals and technicals, especially relative strength.
Based on my Pandemic Index, these beaten-down stocks are not out-of-the-woods just yet. The NASDAQ and S&P 500 have been able to break to new all-time highs, but it's because their exposure to companies suffering from the pandemic was not as high as other indices. Below is a chart of my Pandemic Index:
With coronavirus cases surging in the U.S. and Europe again, Wall Street continues to shun these pandemic-stricken areas of the market. Yesterday's index loss was nearly 4%. The S&P 500 fell 1.86%. It's still too early to jump into these areas. They're still quite sensitive to the virus and any negative news surrounding it. Simply STAY AWAY.
It will be time to re-evaluate the pandemic-stricken sectors and industries when my Pandemic Index clears that June high. I wouldn't consider these groups until then.
I continually discuss this reality with our members at EarningsBeats.com and we have another "draft" coming up on November 19th, where we'll announce the 10 equal-weighted stocks to comprise each of our four portfolios. If you'd like to join and give our service a shot, we have a fully-refundable $7 30-day trial that allows you to kick the tires. CLICK HERE to get your no-cost trial started today (this 30-day trial will enable you to participate in that November 19th Portfolio stock selection, or "draft").
Happy trading!
Tom
