Journal of Business & Economic Policy

Investing in Small Basket Portfolios of DJIA Low Return Stocks: The Potential for Losers to Become Winners
Professor Glen A. Larsen, Jr.

Abstract
The focus of this research is on the performance of portfolios constructed on an annual basis from stocks that make up the Dow Jones Industrial Average (DJIA)using a long-only minimum realized return small-basket portfolio (MinRet SBP)strategy. The MinRet SBP is formed each year using those stocks in the DJIA that had the lowest realized returns in the previous five-years with the weight constraint that no more than 20% of the portfolio can be invested in a single security. Over the 20-year period from 1996 through 2015, the MinRet SBP strategy generates a higher average annual total return and a lower risk per unit of return measure than the DJIA. Perhaps even more importantly, measures of downside risk support the enhanced out-of-sample performance of the actively managed MinRet SBP strategy.

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