Weighing performance: Sectors to trim back on

arobinson@globeandmail.com

What we are looking for

Yesterday, we looked at the top picks for the "TOP60" portfolio of Ron Meisels, the technical analyst for Phases & Cycles Inc. Today we'll look at what stocks to avoid.

Mr. Meisels writes a technical feature for the Saturday Report on Business and he and his team at Phases & Cycles provide research to Caldwell Meisels Canada Fund to help determine its sector weightings as well as individual stock picks.

More about the TOP60

Mr. Meisels uses technical, cyclical and sentiment indicators to pick stocks in the S&P/TSX 60 index that he thinks will outperform. First, he uses a top-down methodology to pick sectors he thinks will outperform, then he uses the bottom-up approach to pick stocks in the favoured sectors.

Determining what stocks to throw out or "underweight" is critical to the bottom-line performance of a portfolio.

The overweighted TOP60 stocks during the past one year, five years and 10 years have had a compound annualized return of 6.3 per cent, 7.4 per cent and 3.7 per cent, respectively; the underweighted stocks were up only 3.9 per cent, 1.3 per cent and 0.7 per cent during the corresponding time periods.

What we found

The TOP60 portfolio is underweight in sectors such as health care, information technology and materials.

The underweight materials stocks include Teck Resources and Agrium Inc., Cameco Corp. and First Quantum Minerals.

Energy and financials are slightly underweight. Underweighted gold stocks include Eldorado Gold Corp., Goldcorp Inc. and Yamana Gold Inc.

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