Thomas Balcom

Date of Award

Spring 2020

Degree Name

Bachelor of Science (BS)

Advisor(s)

Luke Kachersky

Second Advisor

James Kelly

Abstract

This paper is focused on using financial filters during portfolio selection as first inspired by the Dogs of the Dow (DoD) strategy. It will extend on the research of Dubova, Volodin, and Borenko (2018) through examining the same financial indicator filters, but on a global market scale and over a slightly longer period of time. The study first looks at the filters individually to confirm their significance in generating outperformance; it then combines those filters found significant to test for effects of synergies looking to further limit the downfalls of traditional single filter portfolio building such as in the DoD strategy. The study hopes to answer if additional filtering will help to enhance stock selection, as well as address the viability of using multiple filters when tested on developed and emerging markets. The study consists of ten portfolios, testing the five selected financial filters across emerging and developed markets as defined by MSCI. The five selected financial filters are price to earnings ratio, return on assets, dividend yield, price-to-book ratio, and EBITDA-to-debt. After testing for significance, portfolios are tested using multiple filters proven to generate outperformance. The portfolios are to be maintained over a 20 year historical period, 1999-2019, selecting from the MSCI emerging and developed markets with results compared to the MSCI All Country World Index (ACWI) as well as other benchmarks. It was expected that at a minimum all portfolios outperform the ACWI benchmark to varying degrees and levels of significance, due to the use of the filters. Further, a test will be done to see if the interest rate environment affects the performance of select filtered portfolios given the growing number of markets with negatively yielding debt.

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