The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Mar. 4, 1997)

Shhh!!! Don't tell anyone, but I have some friends who dwell among the Wise. (There are some very Foolish Wisemen out there, you know; you just have to hunt for them.) Anyway, a friend of mine with Smith Barney passed along an approach they use in one of their Unit Investment Trusts that will interest those of you following our own MF Cormend's Beating the S&P screen.

As you know, Beating the S&P is a similar strategy to the Dow Dividend Approaches where you choose the highest yielders from a group of large-cap industrial stocks. But as we're always looking for variations, I'll point out how their UIT works.

First of all, start with the S&P Industrial Index (a subset of the S&P 500 which excludes utilities, financial and transportation stocks). And for the same reasons MF Cormend argued in his model, eliminate the Dow stocks to keep this screen from being redundant with the Dow Approach.

Then, as a quality screen, Smith Barney includes only stocks ranked A+ or A by Standard & Poor's. The remaining group is then ranked by market capitalization, and the smallest 25% of the group is eliminated.

This provides you with a group of large-cap stocks with a fundamental stamp of approval from a respected service (Standard & Poor's). Then one simply ranks them by high yield and chooses the top stocks.

Smith Barney back-tested the model using a fifteen-stock portfolio over the past 20 years and it returned a healthy 19.05% annual return. This is very similar to the return for the Dow 10 in recent decades.

An interesting test, of course, would be to take this methodology and apply the low-price criterion we use with the Dow stocks to see if it improves on this benchmark return.

As I've written many times, I'm not a fan of UITs for individual investors except for very small portfolios where the UIT fees would actually be lower than doing it yourself, but the strategy behind this particular UIT is so similar to some of what we track here, I thought I'd pass it along for you to mull over. Thanks again to one of my connections to the world of the Wise for sharing this approach with me.

Monthly Growth Screens
     (Jan. 3 to present)
  10.17%  Relative Strength  
   9.19%  Low Price/Sales  
   8.12%  YPEG Potential  
   5.74%  S&P 500 Index  
  -2.72%  Investing for Growth  
 -11.90%  EPS Plus RS  
 -14.01%  Unemotional Growth  
 -16.68%  Formula 90  

Annual Value Screens
     (Jan. 1 to present)
   7.12%  Dogs of the Dow  
   6.27%  Dow Jones Ind Avg  
   3.68%  Beating the S&P  
   0.35%  Unemotional Value  
   0.35%  Beating the Dow  
   0.25%  Dow Combo  
  -2.90%  Foolish Four