The end of the school year is nigh and children are dreaming of sunny days ahead. Hopefully, their grades will be good enough to avoid the purgatory of summer school.
Investors should also take a moment this summer to grade their portfolios before heading to the beach.
In that spirit, it’s high time to check in on three value portfolios that pick their stocks from the members of the S&P/TSX 60 Index. You can examine the long-term return history of the three portfolios, and the index, in the accompanying graph.
The index itself tracks 60 of the largest stocks in Canada and it gained an average of 8.8 per cent annually over the 23 years through to the end of May, 2025. (The returns herein are based on backtests using monthly data from Bloomberg. They include dividend reinvestment but not fund fees, taxes, commissions or other trading costs.)
The three value portfolios buy an equal-dollar amount of the 10 stocks in the S&P/TSX 60 Index each month that score the best on different market measures that value investors appreciate.
The winning portfolio bought the 10 stocks from the index with the lowest price-to-earnings ratios (P/E). It gained an average of 11 per cent annually over the 23 years to the end of May, 2025 and beat the index by an average of about 2.2 percentage point a year.
Mind you, the low-P/E portfolio was about 37 per cent more volatile than the index over the 23 years and it suffered from some big downturns along the way. For instance, it fell a gut-wrenching 70 per cent during the financial crisis of 2008-2009. Gulp!
The second-best performance was enjoyed by the portfolio that bought the 10 stocks with the lowest price-to-book-value ratios (P/B) from the stocks in the index. It gained an average of 10.6 per cent annually over the 23 years to the end of May, 2025 and beat the index by an average of roughly 1.8 percentage points annually.
Unfortunately, the low-P/B portfolio was 65 per cent more volatile than the index. It also suffered from several crashes including a 64-per-cent decline in the financial crisis and a 48-per-cent decline during the COVID-19 pandemic in early 2020.
The third portfolio barely outperformed the index, which will come as bad news to income-oriented investors. It picked the 10 stocks in the index with the highest dividend yields and gained an average of 8.9 per cent annually over the 23 years to the end of May, 2025. It beat the index by a tiny average of 0.1 of a percentage point annually.
The high-yield portfolio was also 19 per cent more volatile than the index over the 23-year period, which isn’t grand. While it fared a touch better than the index in the financial crisis with a decline of 42 per cent, it fell 41 per cent in 2015 when the market slipped 13 per cent.
In addition to the value portfolios, it’s also useful to consider the low-volatility portfolio that follows the 10 stocks in the index with the lowest volatilities over the prior 260 days. It performed roughly as well the index over the 23 years to the end of May, 2025 with average annual gains of 8.8 per cent.
More positively, the low-volatility portfolio was itself 23 per cent less volatile than the index while enjoying similar returns and generally performing better in most of the big downturns over the 23-year period. For instance, it fell only 32 per cent in the financial crisis of 2008-2009.
I look forward to seeing how the portfolios grow and develop over the next couple of decades as they deal with the market’s school of hard knocks. With a little luck, they might fund a few summer vacations along the way.
Details on the stocks in the S&P/TSX 60, and the other portfolios I follow for the Globe and Mail, can be found via this link.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.