The hypothetical Beating the S&P Portfolio had a great year in 2000, outperforming the S&P 500 by over 26% so far. PepsiCo and Fannie Mae were the two biggest heroes, while Ford was the only stock of the five that underperformed the S&P 500. Unlike recent years, this year witnessed the reemergence of value-style investing over that of growth. The bad news? The recent Foolish Four research results question the ability of the BSP strategy to perform in the future like it has in the past.
It's been that kind of good news-bad news year for the Beating the S&P (BSP) portfolio as well. First the good news: Our hypothetical BSP Portfolio is easily outperforming not only the S&P 500 this year, but all the major averages. Here's the scorecard for this year's returns (as of Tuesday's market close), that also includes all the "official" Foolish portfolios:
Dow 30 -6.9%
Foolish Four -10.1%
S&P 500 -10.5%
Rule Maker -33.8%
Rule Breaker -49.9%
In absolute numbers, BSP is beating the S&P 500 by 26.4 percentage points. Here are the returns for the individual stocks in this year's BSP Portfolio, along with the returns for 1999, the year before they were chosen for the 2000 portfolio:
Stock 2000 1999
PepsiCo +40.2 -13.8
Fannie Mae +38.5 -14.3
Bank One +19.0 -34.8
Bank of America -3.7 -14.0
Ford -14.5 -9.2
Average +15.9 -17.2
S&P 500 -10.5 +20.1
Note that each of our five BSP stocks had a rotten year in 1999, before joining the portfolio for 2000. They were true dogs when we bought them. Here's a quick recap of each of our BSP stocks, from the best-performing stock to the worst.
PepsiCo (NYSE: PEP) has been sizzling this year, on the strength of surging sales of non-carbonated beverages and its snack division, and its recent purchase of Quaker Oats (NYSE: OAT). The company recently has run circles around its arch-competitor and Rule Maker, Coca Cola (NYSE: KO).
Year after year, Fannie Mae (NYSE: FNM) just keeps doing what it does best --making more and more money. Its earnings numbers tell most of the story. What the numbers don't tell is that BSP picked up this nugget when its stock price had been temporarily depressed due to (unrealized) legislative concerns facing this government-chartered corporation.
The Bank One (NYSE: ONE) turnaround story for 2000 rests firmly on the broad shoulders of its new CEO, former Citigroup (NYSE: C) President James Dimon. As we noted in July, Dimon was the architect of a major corporate restructuring plan, and slashed the stock's dividend in half. Since then, Bank One's stock, following in the pattern of Foolish Four Dividend Cutters, has outpaced the S&P 500 by almost 30%.
While Bank One and Bank Of America (NYSE: BAC) both have warned of disappointing earnings recently, Bank of America can't depend on a new CEO to boost its sagging stock price. A victim of this year's ever-increasing interest rates and unexpected losses due to bad loan write-offs, Bank of America's stock price has dropped from $61 in June to around $46 today. The stock is still ahead of the S&P 500 for the year, but is way behind the average return of about 17% for the Bank Index, and is one of two BSP companies that's declined in 2000.
Finally, there's Ford (NYSE: F). Actually, I'd nominate Ford as the biggest pleasant surprise of the year, despite its 14.5% loss. The company runs an economically sensitive cyclical business amidst talk of a recession, faces massive recalls on one of its factory-installed tires and incessant talk of mega-lawsuits, and recently announced an earnings warning -- all in a year when the stock market is tanking. Yet, despite this triple whammy, Ford's stock is underperforming the S&P 500 by only four percentage points. It's still unclear if this year's spin-off of auto parts maker Visteon (NYSE: VC) and a confusing "Value Enhancement Plan" did a whole lot to enhance shareholder value.
This year's stellar BSP performance comes on the heels of the reemergence of value-style investing over that of growth style. Here are the returns for the Vanguard Growth and Value Index Funds for 2000 (as of market close Friday), and last year:
Fund 2000 1999
Vanguard Growth Index -21.6 +28.8
Vanguard Value Index +3.2 +12.6
The Value Index, which has been clobbered by the Growth Index throughout most of the 1990s, has had its comeuppance this year. It's not unusual for these trends to continue for a few years, which would warm the cockles of value investors.
With all this good news for BSP out there, we almost forgot to remind you of the bad news. The bad news is already out of the bag. As we discussed last week, the big, bad news for this year were the concerns raised for the ongoing viability of the Foolish Four, based on recent Foolish research. As I noted, BSP's foundation relied heavily on that of the high-yield Dow strategies. Recent research results question the ability of the BSP strategy to perform in the future like it has in the past, although we're still trying to sift through the Center for Research in Security Prices (CRSP) data to get a better understanding.
The time around the New Year is a time for looking where we've been, and where we want to go. My feelings on this bittersweet year echo that of Winston Churchill:
Now this is not the end. It is not even the beginning of the end. But it is,
perhaps, the end of the beginning.
May 2001 mark the beginning of many bright beginnings for you, your friends, and your family.
Beating the S&P year-to-date returns
(as of 12-26-00):
Bank One (NYSE: ONE) +19.0% PepsiCo (NYSE: PEP) +40.2% Ford Motor Co. (NYSE: F) -14.5%* Bank of America (NYSE: BAC) -3.7% Fannie Mae (NYSE: FNM) +38.5% Beating the S&P +15.9% Standard & Poor's 500 Index -10.5% *Includes Visteon (NYSE: VC) spin-off Compound Annual Growth Rate from 1-2-87: Beating the S&P +23.9% S&P 500 +15.9% $10,000 invested on 1-2-87 now equals: Beating the S&P $194,600 S&P 500 $76,500