Using Vanguard To Manage Your Own Fundamental US Stocks Approach

Fundamental Approach workbook: Fundamental-Approach

The following paragraphs detail the seven steps involved (as used in the above excel workbook) to run a fundamental approach to investing in US stocks.

Step 1

Each month (around the 10th business day), I go to Vanguard's “Custom Reports” tool to download to excel the following data for 10 US Sector ETFs:

  • Earnings growth rate (G)
  • Return on equity (ROE)
  • Price/earnings (PE)
  • Step 2

    To utilize the factors I need, I then develop two numbers for each sector:

  • PE/G (PEG) : Price/earnings (P/E) divided by Earnings growth rate (G)
  • Earnings Yield (EY) : Invert Price/earnings (P/E)
  • Step 3

    Then in excel, rank each sector among all 10 sectors across three factors:

  • PEG
  • ROE
  • EY
  • Step 4

    For the growth sectors (consumer discretionary, healthcare, info. tech.), then use the PEG ranks to develop:

  • “GROWTH SUM” of the growth sectors ranks
  • “GROWTH AVERAGE” of the growth sectors ranks
  • For each growth sector: “WEIGHT as a % of the GROWTH SUM”
  • For the core sectors (consumer staples, industrials, materials, telecomm) use the PEG, ROE, and EY ranks to develop:

  • “CORE SUM” of the core sectors ranks
  • “CORE AVERAGE” of the core sectors ranks
  • For each core sector: “WEIGHT as a % of the CORE SUM”
  • For the value sectors (energy, financials, utilities), use the ROE and EY ranks to develop:

  • “VALUE SUM” of the value sectors ranks
  • “VALUE AVERAGE” of the value sectors ranks
  • For each value sector: “WEIGHT as a % of the VALUE SUM”  
  • Step 5

    For each style (growth, core, value), develop a % of total style averages:

  • “Growth as a % of Total Averages”: GROWTH AVERAGE divided by the sum of the GROWTH AVERAGE, CORE AVERAGE, VALUE AVERAGE
  • “Core as a % of Total Averages”: CORE AVERAGE divided by the sum of the GROWTH AVERAGE, CORE AVERAGE, VALUE AVERAGE
  • “Value as a % of Total Averages”: VALUE AVERAGE divided by the sum of the GROWTH AVERAGE, CORE AVERAGE, VALUE AVERAGE
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