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Leaside Stock Index – Why I left some local stocks off my list

ashworth-chartApr14Shortly after the Leaside Stock Index (LSI) made its debut in the February issue I received a telephone call from a Leaside resident complaining that several stocks were left off the list.

My specific faux pas was that I didn’t include Bank of Montreal, Pizza Pizza and Second Cup in the 20-stock index. The caller was especially disappointed with the exclusion of Bank of Montreal.

It turns out this person owns an obscene amount of the bank’s shares. While that was more information than I needed to know, the question was a valid one. I explained that my choice of TD and Scotiabank was a personal preference. I like TD’s retail business both in Canada and the U.S. as well as Scotiabank’s focus on Latin America and other emerging markets, and not a slight against BMO.

All the Canadian banks are solid investments. For those keeping score, the S&P/TSX Equal Weight Diversified Banks Index, which owns all six major Canadian banks, achieved an annualized total return of 25.2 percent over the last five years through March 4. BMO achieved a slightly better return (26.6 percent) over the same period. The caller’s done well.

Pizza Pizza’s done even better than the banks over the past five years, delivering an annualized total return of 28.5 percent, more than two percentage points higher than Yum Brands, who own Pizza Hut, Taco Bell and KFC. People have to eat, right?

Originally I considered Yum Brands for the LSI (completely overlooking Pizza Pizza) but decided to pick other U.S. stocks instead. With recent news Taco Bell is entering the breakfast business in the U.S., I wish I’d picked its stock because it’s going to give McDonald’s a run for its money.

As for Second Cup I never seriously considered including its stock in the index. Starbucks is one of the best run companies in the restaurant space. Its shareholders have been well rewarded over the past five years yet it continues to press for growth. With five stores in the area it is the biggest beneficiary from our love of coffee.

As for Tim Hortons, it was late to the Leaside party but I’m sure its store on Laird is doing just fine. It always looks busy whenever I walk by. It too has easily outperformed Second Cup since March 2009, up 16.5 percent on annualized basis.

I created the Leaside Stock Index as a way for people to have some fun when thinking about their investments. I love the markets, which is why I write about them. But I’ve come to realize that not many people share my passion. That’s okay. Hopefully, the example in this article gets people emailing questions to Leaside Life about the index itself, a particular index constituent or a stock that’s not part of the LSI. If it’s about stocks I’ll always answer your email.

LSI has rebounded nicely

As expected the Leaside Stock Index rebounded nicely in February with 18 of the 20 stocks in positive territory for the shortest month of the year. The U.S. stocks including currency gained 6 percent compared to 4 percent for the Canadian stocks.

Best Buy came back with a good earnings report in February, recouping 13 percent of its losses in January. Other positive contributions were made by Dunkin Brands, RioCan and Loblaws. RioCan’s gain is especially nice to see becaU.S.e I called it a slightly better buy than First Capital Realty in the March issue.