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Model Portfolio FAQ
What are Validea's Model Portfolios?
Validea Model Portfolios are 10 and 20 stock simulated portfolios based on the strategies on our site.
We offer two types of model portfolios:
Guru-based portfolios: For each of our 11 guru strategies, we offer a 10 or 20 stock model portfolio. Both portfolios are offered for three rebalancing
periods: monthly, quarterly or annual.
Consensus: Portfolios that draw from all of our guru strategies are our consensus portfolios. They are a consensus of all of the individual
guru strategies. Probably the most widely followed of all of our portfolios is one of our consensus portfolios, the Validea Hot List portfolio.
What is the Validea Hot List?
The Validea Hot List model portfolio
is based on a proprietary system we have developed that combines all of the guru strategies on our site.
The system looks for the stocks with the most combined interest from our 11 strategies, but with a twist.
The twist is that we weight the strategies with the best historical risk-adjusted performance more heavily
in our Hot List scoring system. The result is a portfolio of the stocks with the most combined interest
from our strategies with the best historical risk-adjusted performance.
How are the stocks in each portfolio determined?
The stocks in each guru portfolio represent the
stocks that score the highest according to the particular strategy's guru score. The stocks in our consensus model portfolios
are determined using a combination of all our guru strategies.
What is the Current Portfolio?
The current portfolio contains the stocks currently passing the underlying screen for each model portfolio as of the latest market close.
This portfolio contains the stocks that would be in any of our portfolios if
they were rebalanced today. Unlike our other portfolios, the stocks within it are updated every day and we do not track the
performance of the current portfolio. The current portfolio is not available on the site
during the weeks of our rebalancings.
How often are the portfolios updated?
The stocks within our monthly model portfolios are updated once every 28 days on Friday. Our quarterly portfolios
are updated once per quarter. Our annual model portfolios
are updated once every year. The performance
figures shown on the site are updated each night.
The next rebalancing date for our portfolios can be found at the top of our detailed model portfolio page.
How do the model portfolios work?
Each time we update the model portfolios, we perform a simulated transaction in which we sell the
stocks that were previously in the portfolio and then buy the new stocks that currently meet the criteria of the model portfolio.
By performing the updates to the portfolio using this method, we are able to not only get the new stocks in and the old stocks out,
but also to ensure that the stocks are equally weighted on each update date.
When did you begin tracking the model portfolios?
Our original group of guru strategies consisted of eight strategies. We started tracking the performance of them on July 15th, 2003.
These are clearly listed on the site under, "Individual Guru Portfolios started on July 15th, 2003." We have a policy of adding strategies
when we find those that are powerful and successful. These are listed on the site under. "Individual Guru Portfolios started after July 15th,
2003." At this time, we have added three guru strategies to our original group of eight. The consensus portfolios were all begun on July 15th,
2003, and are tracked from that date.
Do you invest money in the model portfolios?
No, the model portfolios are virtual portfolios. Our return calculation system calculates
the returns as if an investor had followed our system, but Validea is not a money management firm and so all investment transactions
are simulated. Employees of Validea may have positions in the stocks within the model portfolios.
One of the stocks in the portfolio has experienced a large price
increase or decrease since the last rebalancing. What do I do?
Since Validea is not an investment advisor, we cannot give advice to holders of any securities published in our portfolios.
The model portfolios are rebalanced monthly, quarterly or annually and no changes are made to the portfolios in between these rebalancings. The performance
numbers published by Validea are based on holding all stocks in the portfolios until the next rebalancing, regardless of
how much the price changes in that period. Returns of individual stocks within the portfolio can and will differ substantially
from the returns of the diversified portfolio, which is why the portfolios will always contain at least ten stocks
for diversification purposes.
Do you use stop losses?
Yes, we utilize a sliding scale stop loss system in our portfolios that is only applied on our scheduled rebalancing dates.
The stop loss percentage we use starts at 40%, but it is adjusted based on the performance of the market. When the market return is positive, the stop percentage rises and when the market is down, the stop percentage falls.
The amount it rises and falls is determined by a propreitery calculation we have developed.
What are the tax consequences of following the Validea model portfolios?
We recommend consultation with your tax professional before following
our model portfolios. Because we change some of our portfolios monthly and they can have high turnover, following the strategies may result in
gains being taxed a higher short term rates. Since we cannot know your personal tax situation, we recommend you consult
with a professional before following any of our portfolios.
Why do the stocks in a particular guru model portfolio not correspond with the stocks currently scoring the highest for that guru in the Guru Stock Screener or the stocks in the current portfolio?
The model portfolios are only updated every 28 days, quarterly, or once per year depending on the portfolio type.
The Guru Stock Screener and the current portfolio are updated every day. As a result, the stocks in a model portfolios
will not always match the highest scoring stocks in the Guru Stock Screener and the current portfolio. In addition, our model portfolios have both size and liquidity
requirements, to prevent small and thinly traded stocks from being added. The guru stock screener does not impose these requirements, and as a result,
the highest scoring stocks from the Guru Stock Screener will sometimes not be added to our portfolios.
What do the fields "Current Interest" and "Interest When Added" mean?
"Current Interest" refers to the number of our guru strategies that currently pass the stock with some or strong interest.
"Interest When Added" refers to the number of strategies that passed the stock when it was added to the model portfolio. For more
information on what strong and some interest mean, please see our guru analysis FAQ.
Is there any affiliation between Validea and the creators of the strategies the model portfolios are based on?
No, the names of individual investment advisors (i.e., the 'gurus') appearing on
our site are for identification purposes of his methodology only, as derived
by Validea.com from published sources, and are not intended to suggest or imply
any affiliation with or endorsement or even agreement with our reports
personally by such gurus, or any knowledge or approval by such persons of the
content of our site.