Our latest systematic strategy based on fundamentals

Our latest systematic strategy based on fundamentals

The investment team at Rivkin is constantly on the lookout for new strategy ideas and we have spent the last few months developing a fundamentals-based strategy to complement our existing strategies. We are calling the new strategy ‘Value’ and it is designed to be run alongside our current four strategies (Momentum, Blue-Chips, Income and Events).

The portfolio will consist of ten stocks that are chosen from the ASX 200. The screening criteria that selects the stocks is based purely on fundamental criteria rather than price based (technical) criteria. This makes the portfolio a perfect complement to Rivkin’s existing Momentum strategy which is a technical based strategy.

These stocks are picked from the ASX 200 index ensuring that only medium to large sized companies are eligible for inclusion in the portfolio. Furthermore, metals and mining stocks are excluded due to them typically having high price volatility.

The basis of the strategy is as follows. Stocks are screened based on their ‘earnings quality’. Earnings quality represents the stability and sustainability of a company’s earnings stream rather than just looking at the absolute level of the earnings. Fundamental screens that look just at a company’s level of earnings (for example, looking at P/E) can miss the fact that those earnings may have a high degree of volatility (i.e. they vary significantly from year to year).

High quality (sustainable) earnings have been shown to lead to future outperformance in the total return of the stock. Earnings quality, therefore, is the first level of screening that we do to select stocks for the portfolio. While all stocks in the portfolio have a positive dividend yield (on a trailing basis) they will not generally pay high dividends.

This is because we are looking for companies that reinvest their profits back in the company to continue to grow it and therefore only pay out a small percentage as dividends. Members can therefore expect some dividends from this portfolio but should not expect an especially high dividend yield.

The portfolio is rebalanced monthly which means that any changes in company fundamentals are quickly reflected in the composition of the portfolio.

Monthly rebalancing doesn’t mean that the entire portfolio will change each month. In general, most stocks in the portfolio in one month will still be in it the next month and therefore only a couple of positions will need to be changed.

For example, the March portfolio might only have two different stocks from the February portfolio and therefore only two buys and sells are required. The strongest value stocks will tend to stay in the portfolio for a longer time and the back-testing shows several stocks that generated large returns over a relatively long time period.

For example, TPG Telecom (TPM) was picked up in April of 2012 and held until October of 2015. During this time, the percentage profit is 355%. Of course, there are trades that lose money but on average this strategy produced a back-tested average annual return of 15.5%. In terms of trading frequency, we expect the average number of trades per month to be around 2 – 3.

The table below summarises the key features of the strategy.

Strategy Name


Selection Universe

ASX 200

Number of Stocks


Rebalancing Frequency

Monthly (5th of each month)

Stock Selection Criteria


Stock Weights

Equally Weighted


The first portfolio for Value began in February but new members can start the portfolio at any time. In summary, this is a fundamentals based trading strategy that only requires action once per month (at most).  Please contact us on 1300 748 546 if you are interested in investing in this strategy.

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DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.