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Finding strength in diversified philosophies

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What are we looking for?

An all-round portfolio composed of Canadian stocks that score highly on income, growth and momentum scorecards. It should appeal to investors who want a diversified portfolio that reflects many investing philosophies rather than a single strategy.

How we did it

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Craig McGee, senior consultant at Morningstar Canada, provided a glimpse of the current holdings for the CPMS Canadian Triple 5 model portfolio.

The Triple 5 is a pooled strategy that offers a blend of different investment philosophies. It combines five stocks from each of CPMS's Income, Predictable Growth and Momentum strategies.

Each strategy is defined by different criteria but all three share a level of strong earnings momentum and improving expectations. The Income strategy focuses on stocks with high dividend yields; the Predictable Growth strategy looks for stocks with reasonable price-to-earnings (P/E) ratios and a history of less volatile earnings; the Momentum strategy favours stocks with strongly rising earnings and share prices.

More about Morningstar

Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its investment research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.

What we found

In 2012, the Triple 5 posted a total return of 16.7 per cent, which was the highest return for any of CPMS's Canadian strategies. By comparison, the S&P/TSX Total Return Index returned only 7.2 per cent.

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Since inception on Dec. 31, 1985, the model has generated annualized returns of 16.5 per cent, against 8.2 per cent for the index.

As always, investors should do their own research before buying any of the stocks listed here. While a portfolio that reflects many different strategies can produce strong results, it is still susceptible to a generally falling market.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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